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The Arizona Small Business Income Tax is a new tax that individual taxpayers can voluntarily pay. Why would you want to voluntarily pay a new tax?  Depending on your situation, if you operate a small business in Arizona, this new tax could actually save you money.  If your marginal tax rate on your personal Arizona income tax return is over 3.5% and you operate a small business, making the election to file the Form 140-SBI could result in lower total tax paid overall.

There are a few key considerations to keep in mind:  

  • This is a year-by-year election that must be made on a timely filed individual income tax return.
  • This is an individual election that does not depend on an entity making a choice on the issue.
  • The election is made by completing the AZ Form 140-SBI to report your small business income, the 140-SBI return is filed together with the Arizona individual income tax return, Form 140. 
  • Making the election removes Arizona small business adjusted gross income from your individual income tax return thereby reducing your Arizona taxable income on your regular income tax return. A separate tax will be computed on the Form 140-SBI.
  • You must file Form 140-SBI along with your Form 140 by the due date (including valid extensions), If you file Form 140-SBI late, your election will be denied and the subtraction on the Form 140 will be disallowed. 
  • You cannot amend your previously filed return to add the 140-SBI.

Read more about the details here and contact us to see if this is a tax-saving option for your small business.