Illinois is in the top third of states with high business taxes at 9.25 percent, but the tax environment is offset by the economic strength of the state, which features major corporations in agribusiness, healthcare, and farm machinery. Related businesses like suppliers, service providers, transportation and logistics services, and human resources assets stay in Illinois to take advantage of the robust economy.
The state’s sales tax is 6.25 percent and the average combined state and local sales tax rate is 8.86 percent. The effective property tax rate is 1.95 percent.
States like New York, New Jersey, California, and Connecticut have higher business tax burdens but it’s a badge of honor for Illinois to be counted among the largest state economies in the nation.
Many taxes are unavoidable, yet can be minimized through a holistic, strategic approach. There may be tax advantages to reclassifying your business, changing employment terms, or structuring an expansion. A knowledgeable business attorney can identify potential areas of savings, achievable through a long-term plan.
Ten Illinois Business Tax Concerns
New and existing businesses in Illinois must account for every expense. Good record keeping is key, as is consulting with an experienced tax attorney to take advantage of all possible breaks and credits that the law allows.
The following are common Illinois taxes and tax credits:
- Qualified Business Income Deduction. Known as QBI, this 20 percent deduction is expiring at the end of 2025. The QBI deduction was instituted in 2017 for certain categories of businesses, including sole proprietorships, S Corporations, and partnerships. Real Estate Investment Trust dividends must qualify under specific conditions.
- Retailers Occupation and Use Tax Rates. Also known as sales tax, Illinois’ base rate is 6.25 percent, but some food, medical equipment, and other items are taxed at 1 percent. The retail (grocery) food tax is set to expire at the end of 2025. It’s up to the retailer to break out which sales are groceries, at 1 percent, and which are prepared food designated for immediate consumption (taxed at 6.25 percent).
- Personal Property Replacement Tax. This 2.5 percent tax on the net income of corporations and 1.5 percent tax on the net income of S Corporations, partnerships, and trusts is paid to the state and distributed to local taxing districts. This blanket tax replaced the ability of individual municipalities and taxing districts to set their own rates.
- Pass-Through Entity Tax. This is a quarterly obligation for S Corporations, LLCs, and partnerships. Based on the qualified net income of the business, it’s 4.95 percent.
- Withholding Tax. If your company withholds payroll taxes for employees, you must pay a 4.95 percent withholding tax.
- Unemployment Insurance Tax. This rate varies from .55 percent to 7.75 percent. The calculation is based on both the State Unemployment Insurance experience factor and the Federal Unemployment Tax Act.
- Cost Segregation. Accelerate depreciation of real estate (or parts of physical plant) to realize tax savings.
- New Markets Development Tax Credit. This is a federal program that rewards companies for investing in low income regions. Businesses must qualify through an application process.
- Economic Development for a Growing Economy (EDGE). This tax credit can be 50 to 75 percent of withholdings for newly created jobs, particularly in disadvantaged areas.
- Opportunity Zones. Companies that invest in economically disadvantaged areas can benefit from tax breaks. Illinois has dozens of opportunity zones that could become home to your business’s planned expansion or new headquarters.
Spend Your Tax Dollars Strategically
Whether your business is new or a long-running operation, it’s crucial to take advantage of the latest developments in tax policy. By partnering with an experienced business attorney from Legacy & Life LLC you will minimize tax exposure and maximize credits, deductions, and other advantages. Let us help you plan your business’s future growth.