Maryland Business Taxes Explained for New Owners

Maryland Business Taxes Explained for New Owners

Maryland Business Taxes Explained for New Owners

Maryland business taxes come in three flavors, depending on how you structure your company: pass-through income for LLCs and sole proprietorships, corporate income tax for C corporations, and sales tax if you sell goods or services. This guide walks through what you owe, when you owe it, and where to file, so you can plan your tax strategy and budget accurately.

How Maryland Taxes Different Business Structures

Your business structure drives your tax obligation, because Maryland taxes income, not entities. A sole proprietor, LLC member, or S corporation shareholder reports business income on their personal state return. A C corporation files its own return and pays corporate income tax. That distinction matters because the tax rates and filing deadlines are completely different.

LLC Taxes in Maryland

An LLC is a pass-through entity for Maryland income tax. That means the LLC itself does not pay state income tax. Instead, each member reports their share of profit or loss on their Maryland personal return and pays personal income tax on it.

Personal Income Tax Rates

Maryland imposes a graduated state income tax ranging from 2% to 6.5%, depending on your tax bracket. County and Baltimore City add a local income tax of 2.25% to 3.30% for 2026. So if you live in Baltimore City and earn $60,000 in LLC income, you would owe roughly 6.5% state tax plus the Baltimore City rate on your Maryland personal return, plus self-employment tax at the federal level.

The state rate brackets for 2026 are:

  • 2% on income up to $1,000
  • 3% on $1,000 to $3,000
  • 4% on $3,000 to $100,000
  • 5.75% on $100,000 to $125,000
  • 5.8% on $125,000 to $150,000
  • 6% on $150,000 to $250,000
  • 6.5% on $250,000 and above

These brackets apply to all taxable income, including business income. County rates vary by location. Check your county assessor's office for your specific rate.

No Franchise Tax on Ordinary LLCs

Maryland does not impose a separate franchise tax or annual business tax on ordinary LLCs. Your only recurring state tax cost is the $300 annual report fee due April 15 each year. (The annual report is a filing requirement, not a tax, but it does carry a fee.)

Self-Employment Tax

As an LLC member, you are self-employed for federal purposes. You owe federal self-employment tax (15.3% of net profit, capped at the annual Social Security wage base) on your share of LLC income. Maryland does not collect this tax, but it is a federal obligation you cannot avoid. File IRS Schedule SE (Self-Employment Tax) with your personal federal return.

Maryland Corporation Taxes

Corporate Income Tax Rate

Maryland imposes a flat 8.25% corporate income tax on the taxable income of C corporations. This rate applies to all Maryland-source income. A corporation files its own state income tax return (Form 500) and pays tax directly, separate from shareholders' personal returns. Shareholders then pay personal income tax on dividends they receive.

Annual Report and Filing Requirement

Every corporation must file an annual report with the Maryland State Department of Assessments and Taxation (SDAT) by April 15 each year. The fee is $300. This is the same deadline and fee as an LLC annual report.

Sole Proprietors and Personal Income Tax

If you operate as a sole proprietor (no LLC or corporation), you report all business income on your personal Maryland return at the graduated rate above. You also owe self-employment tax to the IRS. Many new owners operate as sole proprietors initially, especially if they are the only person involved. Once you generate consistent profit, an LLC or S corporation election may save taxes by reducing self-employment tax on certain income.

Maryland Sales Tax

Statewide Rate

Maryland's state sales tax rate is 6% on most goods and services. Some localities add additional local tax, ranging from 0% to 2%, for a total combined rate of 6% to 8% depending on where you sell. The breakdown is 6% state, then the local add-on. For example, Baltimore City applies 1.25% local tax, for a combined rate of 7.25%.

Who Must Collect Sales Tax

If you sell tangible goods or certain services in Maryland (or to Maryland residents), you must obtain a sales tax license and collect sales tax from customers. "Tangible goods" means physical items: clothing, food, tools, art supplies, books, and so on. "Certain services" includes things like repairs, cleaning, landscaping, and personal services. Professional services like legal advice, accounting, and medical services are generally exempt. The safest approach is to contact the Comptroller of Maryland to confirm whether your specific business owes sales tax.

Sales Tax License and Permit

Apply for a free Sales and Use Tax License through the Comptroller of Maryland via the Combined Registration Application at https://businessexpress.maryland.gov/start/taxes-and-insurance. You can file online through Maryland Business Express. The license is free, but you must have it before you collect any tax. Once approved, you will receive a registration number and monthly filing requirements.

Sales Tax Filing and Payment

Most businesses file and pay sales tax monthly to the Comptroller. Large retailers may be required to file more frequently (weekly or daily). You collect tax from customers, hold it in trust, and remit it to the state by the 15th of the following month. File online through the Comptroller's website. Failure to remit collected tax on time results in penalties and interest.

Exemptions and Resale

You do not owe sales tax on purchases you make for resale. If you buy goods wholesale and resell them at retail, provide your sales tax license number to your supplier and they typically will not charge you sales tax on the wholesale purchase. You then collect sales tax from the end customer. Keep resale certificates and supplier invoices for audit support.

Maryland Tax Filing Deadlines

Annual Report (LLC and Corporation)

Due date: April 15 each year. File with the Maryland State Department of Assessments and Taxation (SDAT). The fee is $300 for both LLCs and corporations. You can file online through Maryland Business Express at https://egov.maryland.gov/businessexpress. If you need more time, request an extension at https://pprextensions.dat.maryland.gov before April 15.

Personal Income Tax Return

Due date: April 15 (federal extension to October 15 also extends Maryland). If your business is an LLC or sole proprietorship, you report income on your personal Maryland return (Form 505 or 504) along with your W-2 wages and other income. You cannot file separately just because you run a business.

Corporate Income Tax Return

Due date: April 15 for calendar-year corporations (Form 500). If your corporation has a fiscal year different from the calendar, the due date is 2.5 months after your fiscal year ends. A six-month extension to October 15 is available by filing Form 500-L before the original due date.

Sales Tax Return

Due date: 15th of the month following the reporting period (usually monthly). File online through the Comptroller's website. Quarterly filing is available for very small businesses by application. Payment is due the same day.

Estimated Tax Payments

If you expect to owe more than $300 in Maryland state income tax on your business income (after withholding), you are required to make estimated tax payments. Sole proprietors and LLC members typically pay estimated federal income tax quarterly (by April 15, June 15, September 15, and January 15). Maryland law requires estimated payments for significant business income but offers some flexibility. Consult a tax professional to determine if you must make them and in what amounts.

Deductions and Expenses

Maryland follows federal tax law closely. Any expense you can deduct on your federal return typically is deductible on your Maryland return as well. Common business deductions include rent, supplies, equipment, salaries, advertising, professional fees, vehicle expenses, home office deduction, and insurance. Keep receipts and document business expenses carefully. The IRS defines "ordinary and necessary" broadly, but personal expenses (commuting, meals at home, personal entertainment) are not deductible. When in doubt, consult a CPA.

Quarterly Filings and Record Keeping

Sales tax is the most frequent filing requirement, typically monthly. Set aside tax money as you collect it, do not spend it. Many business owners use a separate bank account for tax liability to avoid the temptation to use the money for operations. Keep all business records and receipts for at least three years. The IRS can audit up to six years back if there is reason to believe income was underreported. State audits follow the same general timeline.

Getting Help with Maryland Business Taxes

Maryland's tax rules are precise but also complex when you add in federal rules, county variations, and your specific business structure. Consider working with a CPA or tax professional early on. A good CPA can help you:

  • Choose the right business structure (LLC, S corp, C corp) for tax savings
  • Plan estimated tax payments and avoid penalties
  • Maximize business deductions you might miss on your own
  • File accurate federal and state returns
  • Stay compliant with sales tax, payroll tax, and other recurring filings

For detailed information on Maryland income tax, visit the Comptroller of Maryland at https://www.marylandcomptroller.gov/. For LLC and corporation questions, check the SDAT website at https://dat.maryland.gov/businesses/Pages/default.aspx.

Disclaimer

This guide is informational only and does not constitute legal or tax advice. Tax rules change, rates vary by county, and your personal situation may require customized analysis. Consult a qualified Maryland CPA, tax attorney, or both before making tax decisions for your business. The information here is accurate as of 2026 but should be verified with official state sources before relying on it for filing or payment purposes.

Key Takeaways

Maryland taxes business income at the personal level for pass-through entities (LLCs, sole proprietorships) at rates of 2% to 6.5% state income tax, plus county tax of 2.25% to 3.30%. Corporations pay a flat 8.25% corporate income tax. If you sell goods or taxable services, you must collect 6% state sales tax plus local add-ons. File annual reports by April 15 ($300 fee). Pay monthly sales tax if applicable. Track all business expenses for deductions. Consult a CPA or tax attorney for guidance specific to your business structure and situation.