Arizona small businesses deal with several layers of taxes at the federal, state, and local level. The exact mix depends on your entity type, whether you have employees, and what your business does.

Federal income tax applies to every business. How you pay it depends on your structure. Sole proprietors and single-member LLCs report business income on their personal return through Schedule C. S-Corps and partnerships pass income through to the owners’ personal returns. C-Corps pay corporate income tax directly at the entity level. Regardless of structure, you’ll likely need to make quarterly estimated payments to the IRS if you expect to owe more than $1,000 for the year.

Self-employment tax is the one that surprises a lot of new business owners. Sole proprietors and LLC members pay 15.3% on net earnings to cover Social Security and Medicare. S-Corp owners can reduce this by paying themselves a reasonable salary and taking remaining profits as distributions, which aren’t subject to self-employment tax. That difference alone is why many small business owners elect S-Corp status once they’re consistently profitable.

Arizona state income tax is a flat 2.5% for individuals. That applies to sole proprietors, S-Corp shareholders, and partnership members on their pass-through income. C-Corps pay Arizona corporate income tax at 4.9%. Arizona does not charge a franchise tax or a separate business privilege tax based on revenue, which is one advantage of operating here compared to other states.

Transaction Privilege Tax (TPT) is Arizona’s version of sales tax, and it works a little differently than most states. TPT is technically a tax on the business for the privilege of doing business, not a tax on the buyer (though most businesses pass it through to customers). If your business sells taxable goods or services, you need a TPT license and must collect and remit TPT. Rates vary by city. In Chandler, the combined state and city rate runs around 8.6% for most retail transactions. Construction, restaurants, and other industries have their own TPT classifications and rates, so the amount you owe depends on your specific business activity.

Payroll taxes apply once you hire employees. You’ll withhold federal income tax, Social Security, and Medicare from paychecks and pay the employer’s share of FICA. Arizona state income tax also gets withheld. The good news is Arizona doesn’t have city-level income taxes, which simplifies things compared to states with local withholding requirements. You’ll also pay federal unemployment tax (FUTA) and Arizona unemployment insurance, with UI rates varying based on your claims history.

Property tax applies if you own commercial real estate or business personal property like equipment and furniture. Maricopa County handles assessment and collection on an annual basis.

The biggest challenge isn’t knowing what taxes you owe. It’s keeping up with all the deadlines throughout the year. TPT is typically filed monthly. Payroll taxes deposit on a set schedule. Estimated income tax payments are due quarterly. Missing any of these results in penalties that add up quickly. Having accurate, up-to-date bookkeeping is what makes it possible to stay on top of all of it and file correctly.

If you’re unsure whether you’re handling all of this properly, working with a bookkeeper in Chandler who understands Arizona tax requirements can help you get organized. Clean books throughout the year mean fewer surprises at tax time and a much happier tax accountant.