Registration Requirements in Virginia
Most businesses with activity in Virginia are required to register with Virginia Tax. Some businesses are also required to register with the State Corporation Commission. The State of Virginia has a guide you can follow, found here.
S-Corporation Income Tax
Virginia recognizes the federal S-election, and Virginia S corporations are not required to pay tax to the state. However, individual S corporation shareholders will owe tax on their share of the corporation’s income
LLC/Partnership Income Tax
LLCs and partnerships are not required to pay income tax to Virginia. Instead, income from the business is distributed to individual LLC members or partners, who then pay Virginia income tax on that amount with their personal return.
Pass Through Entity Tax
Pass through entities doing business in Virginia are required to file a Virginia pass through entity tax return on Virginia Form 502.
Pass through entities that have 2 or more nonresident individual owners may file a composite nonresident individual income tax return on behalf of its qualified nonresident owners who wish to participate.
Individual Income Tax
Virginia uses a fixed conformity to the federal tax code as it existed in December 31, 2019, with certain exceptions.
The starting point for computing Virginia's personal income tax liability is the federal adjusted gross income and allows their own state defined additions and subtractions to arrive at Virginia's adjusted gross income.
If you claimed the standard deduction on your federal income tax return, you must also claim the standard deduction on your Virginia return. Here are the standard deduction amounts as of 2019.
• Married Filing Joint standard deduction - $9,000
• Married Filing Separate standard deduction - $4,500
• Single standard deduction - $4,500
If you itemize your deductions on your federal income tax return, you must also itemize them on your Virginia return. You can claim most of the same deductions on your Virginia return that you did on your federal Schedule A.
Although the personal exemption was eliminated on the federal level starting in 2018, Virginia maintained the state's existing personal and dependent exemptions. The exemption amount is $930 for each filer and qualifying dependent.
Virginia does not conform to the Internal Revenue Code (IRC) Section 199A, also known as the QBI deduction.
Individual income tax varies by taxable income and filing status. Tax rate schedules are as follows.
CARES Act Guidance
Virginia does not conform to the IRC Section 172 of the CARES Act regarding business net operating loss (NOL) provisions. Instead, Virginia will retain its treatment of business NOLs, not allowing any carryback and allowing only an indefinite carryforward.
Returns are due on the 15th day of the fourth month following the close of the tax year. For most taxpayers, returns are due on April 15th.
Individuals who can expect their tax liability at the end of the tax year to exceed $150 will generally be required to make estimated payments.
Filing an Extension
Pass through entities and individuals will be automatically granted a 6 month extension. The extension does not apply for the payment of any tax due.
Virginia returns filed more than 6 months after the due date with a balance due will be subject to a late filing penalty. This penalty is assessed at a rate of 6% per month up to a maximum of 30%.
Pass-through entities, including S corporations, LLCs, general partnerships, limited partnerships (LPs), and limited liability partnerships (LLPs), that do business in, or receive income from, Virginia must file a tax return (Form 502) for information purposes even though no tax may be due
If your business was formed or is located in another state, but generates income in Virginia, it may be subject to Virginia taxes. The rules for taxation of multistate businesses, including what constitutes nexus with a state for the purpose of various taxes, are complicated. If you run such a business, you should consult with a tax professional.