How to Calculate Allocation Percentage for State Income Tax

by Kevin Johnston Google

Many states charge business income tax. A simple check at the Federation of Tax Administrators ( will tell you if you are subject to state taxes. Be sure to check to see how your state treats your specific business entity, whether it is a corporation, partnership, LLC, or sole proprietorship. If your business must pay state taxes, you will need to allocate money to pay your taxes at year's end. Perform some simple calculations to help you prepare by setting aside money on a regular basis to pay your state income tax.

1. Find your state's tax rate on the type of business you own. States list the percentage rates they levy for taxes on businesses, and you should start with that percentage in your calculations.

2. Figure your net income. States levy taxes on net income, not gross. When you figure your federal taxes, you will know your net income. Use this figure to determine your state tax obligation.

3. Multiply your state's tax percentage times your net income. This is the amount of tax you will owe the state at the end of the year. The percentage times your net income yields a dollar figure.

4. Divide your total state tax obligation by 12. This calculation gives you the amount of money you should set aside each month to pay state taxes. Set up a bank account and deposit this amount of money in it each month.


  • States do not ask for quarterly payments of taxes, so simply set aside the allocated amount each month in a bank account and pay your state taxes at the end of the year.

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