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Business Property Tax: What You Should Know
October 16, 2019
Business-Property-Tax

Business Property Tax: What You Should Know

Starting a new business in the United States is tough. In fact, just half of businesses with employees last for more than five years. The reason for this is that many of these businesses simply don’t have enough cash on hand to pay their expenses.

If you own property that you use for your operations, business property tax will be one of your larger expenses and can significantly impact cash flow. Despite this, many new owners don’t consider property tax when they’re starting out. This is a mistake.

Even though business property tax can be tough to wrap your head around, it’s critical to understand. Fortunately, this post covers everything you need to know about business property tax.

What is Business Property Tax?

Your business property tax must be paid to the government for the land and buildings that you own. Just like a homeowner pays a property tax on their home, your business must pay tax on your property as well.

The amount you pay will be based on the overall value of your land and buildings. Since property tax is assessed at the local and state level, the value of your property will be determined by your local tax authority.

Generally, your local and state government will use the proceeds from your tax payment to pay for community areas, such as schools and other services.

How Business Property Tax is Calculated:

The calculation for the tax itself can be difficult to pin down because of how it’s calculated, which varies by city, county, and state. Of course, there are some general similarities across the country, which we’ll review here.

Your tax bill is calculated by taking your property tax rate and multiplying it by the assessed value of your property. Generally, the higher the assessed value of your property, the more you’ll pay in property tax.

However, to get a precise idea of the property tax you’ll pay, you (or a consultant) must research the property tax laws and rates in your area.

For example, in New York City, property taxes are based on the assessed value of your property which is based on your property’s market value. However, New York City also offers certain exemptions and abatements as well as varying tax rates for different types of buildings.

If you view a detailed breakdown of New York City’s property tax calculations you’ll quickly understand why it’s impossible to provide a universal formula that details exactly how your tax will be calculated.

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How to Pay Business Property Tax:

Calculating your property tax can be difficult. Fortunately, most of the time, your local authority will do it for you. After your local government finishes assessing your property value, they will send you a memo detailing what you owe. The due date will be listed on the memo, and you can even appeal to the town or city if you feel that you’re being charged too much.

Normally, you’ll receive these memos either yearly or quarterly. However, unexpectedly large tax bills can cause issues with your cash flow, so you should at least have a rough idea of how much tax you’ll owe prior to the due date.

What About Business Personal Property Tax?

Sometimes, you need to pay another part of the property tax for specific items in your business. This is known as the personal property tax. These are taxes you pay on miscellaneous items such as printers, computers, desks, and other equipment necessary for business operations.

Although you pay an initial tax when you purchase these items, in some states and cities, you’re required to pay a personal tax as well.

Usually, the IRS allows for tax deductions on these items, so you’ll want to apply for deductions on these items if they’ve been taxed by your local authority. If you want to read the full list of the IRS’s deduction options and restrictions you can do so here.

Conclusion: Managing Your Business Property Tax Requires Financial Discipline

As a business owner, you should keep business property tax in mind when you’re calculating your expenses. It’s also important that you pay your taxes on time to avoid any additional fees or penalties.

If you’re just starting out, or opening a new location, it’s worth taking the time to understand how property taxes in your area will affect your expenses. As you now know, location plays a significant role in determining how much property tax you must pay.

However, even if you’re already set on your location, having a general understanding of how and when you should expect to pay business property tax is an important part of being financially disciplined.

Fora Financial

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

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Fora Financial is a working capital provider to small business owners nationwide. In addition, the Fora Financial team provides educational information to the small business community through their blog, which covers topics such as business financing, marketing, technology, and much more. If you’d like to see a topic covered on the Fora Financial blog, or want to submit a guest post, please email us at [email protected].