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SMALL BUSINESS NEWS

11 January 2011

 

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Illinois Tax Increase

Today the Illinois State Legislature voted to increase the personal and corporate income taxes by 66% and 47% respectively.  The personal income tax rate will increase from 3% to 5%.  The corporate income tax rate will increase from 4.8% to 7%. This is an effort by Governor Quinn to plug a budget gap of $15 billion.  The measure is expected to generate about $6.8 billion annually.

How will this new measure affect small businesses in Illinois?  Since most small businesses pay taxes at the personal income tax rate it mean that small business owners will be paying higher taxes.  Small business owners were relieved to see that federal tax will remain the same, but their hope for lower taxes in 2011 has been shattered.

Below is a chart that shows the difference in personal income taxes you have to pay between 2010 and 2011 based on income from $40,000 to $200,000.

 

INCOME

2010 TAXES

2011 TAXES

$40,000

$1,200

$2,000

$50,000

$1,500

$2,500

$60,000

$1,800

$3,000

$70,000

$2,100

$3,500

$80,000

$2,400

$4,000

$90,000

$2,700

$4,500

$100,000

$3,000

$5,000

$110,000

$3,300

$5,500

$120,000

$3,600

$6,000

$130,000

$3,900

$6,500

$140,000

$4,200

$7,000

$150,000

$4,500

$7,500

$160,000

$4,800

$8,000

$170,000

$5,100

$8,500

$180,000

$5,400

$9,000

$190,000

$5,700

$9,500

$200,000

$6,000

$10,000

 

 

Will small businesses move to neighboring states with lower tax rates?  Currently the personal tax rate in Iowa is 0.36 - 8.9%, in Wisconsin itís 4.6 - 7.75%, in Indiana itís 3.4%, and in Missouri itís 1.5 - 6%.  States such as Texas, Nevada, Wyoming, Washington, South Dakota, Tennessee, New Hampshire, Florida and Alaska have no personal income tax rates.  In Tennessee and New Hampshire taxe is limited to Dividends and Interest Income only. The 2010 Census Report shows a migration from Illinois to states like Texas and Nevada.  Maybe small businesses will follow.  The blogs are filled with discussion from people who have already decided to moved, as a result of the new tax law.  The blogs are also filled with discussion from people who want to move but canít because they canít find buyers for their homes.  Given the higher taxes (including real estate taxes) there is no long list of people lining up to move to Illinois.

The corporate tax rate at 7% will be the 3rd highest in the country behind Minnesota and Pennsylvania.  Businesses who pay taxes at the corporate tax rate have a higher tax burden as illustrated by the chart below.

 

 INCOME

2010 TAXES

2011 TAXES

$40,000

$1,920

$2,800

$50,000

$2,400

$3,500

$60,000

$2,880

$4,200

$70,000

$3,360

$4,900

$80,000

$3,840

$5,600

$90,000

$4,320

$6,300

$100,000

$4,800

$7,000

$110,000

$5,280

$7,700

$120,000

$5,760

$8,400

$130,000

$6,240

$9,100

$140,000

$6,720

$9,800

$150,000

$7,200

$10,500

$160,000

$7,680

$11,200

$170,000

$8,160

$11,900

$180,000

$8,640

$12,600

$190,000

$9,120

$13,300

$200,000

$9,600

$14,000

 

Taxes are an important factor for businesses.  The more taxes businesses have to pay the less of their income they get to retain to further the interest of the business.  Taxes influence decisions made about where to locate the business, it impacts how much they can pay to retain good employees, whether or not they should hire new employees and it impacts their ability to be competitive with domestic and international competitors.

By Owen Daniels

 

 

 
 

 

  
 

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