Step-by-Step Vermont Tax Return for 2021: Small Business Owners

This guide helps Vermont small business owners confidently file their 2021 state income tax return. It simplifies complex tax rules so business owners can avoid costly mistakes during filing. Each section walks through Vermont-specific forms, requirements, and documentation for the 2021 tax year. Whether new to business taxes or experienced, this guide ensures you meet key obligations without confusion.

It reflects the official 2021 guidance from the Vermont Department of Taxes, including updated forms and deadlines. Essential details like the April 18, 2022, filing deadline and extension rules are clearly explained. Every instruction in this guide complies with state requirements, helping you avoid penalties or processing delays. For transparency, we based all information on publicly available Vermont Department of Taxes materials.

This guide suits Vermont sole proprietors, LLC members, and S-corporation shareholders with state-reportable business income. This guide applies if you earned self-employment income or received a Schedule K-1 in Vermont. Freelancers, contractors, and independent professionals operating in Vermont will also benefit from this step-by-step resource. No matter your structure or earnings level, this guide supports proper compliance with Vermont business tax rules.

Understanding Vermont Income Tax for Small Businesses

Understanding how Vermont income tax applies to small business owners is essential for preparing an accurate Vermont tax return for 2021. Many taxpayers are unaware of how their business earnings, adjusted gross income, and entity type influence their income tax return, possible credits, and tax payment responsibilities. Below is a breakdown that clarifies these key aspects, especially for those filing with the Vermont Department of Taxes.

How Vermont Income Tax Applies to Small Business Earnings

• Business Income Is Usually Passed Through to Personal Tax Returns: Sole proprietors, partnerships, and LLCs generally don’t pay corporate income taxes directly. Instead, business income flows through to the owner’s income tax return and is taxed at individual Vermont income tax rates.
  
  
• Entity Type Determines Tax Filing Requirements: S corporations file Vermont tax forms such as BI-471, but income still passes through to shareholders who must file a personal Vermont tax return. C corporations, however, pay corporate income taxes directly to the state.
  
  
• Self-Employment Income Is Fully Taxable: If you're self-employed, all business profits count as income and must be reported on Form IN-111. You'll pay both federal and Vermont income tax on this income, and should also plan for tax payments throughout the tax year.

Differences Between Personal and Business Income Tax in Vermont

• Personal Income Tax Includes Business Profits for Pass-Through Entities: Many small business taxpayers don't realize that their business income becomes part of their income tax calculation—especially if you're a sole proprietor or member of a multi-member LLC.
  
  
• C Corporations Pay Direct Business Taxes, Separately from Owners: In contrast, if you operate a C corporation, the company pays Vermont corporate income taxes. Dividends paid to shareholders are then taxed again as personal income—a form of double taxation.
  
  
• Certain Credits Are Only Available at the Individual Level: Earned income tax credit and other Vermont-specific credits can typically be claimed only on personal returns, not on business filings—even if the income was earned from your business.

How Federal Adjusted Gross Income (AGI) Affects Vermont Taxes

• AGI Forms the Basis of Vermont Income Tax Calculations: Your federal adjusted gross income (AGI), calculated on your IRS return, is the starting point for your Vermont income tax computation. Vermont makes certain additions or subtractions to this figure based on local tax rules.
  
  
• State Adjustments Can Raise or Lower Your Final Tax Bill: Some taxpayers may see their Vermont taxes increase or decrease due to adjustments like business expense limitations, bonus depreciation differences, or no deductions at the state level.
  
  
• Your AGI Affects Your Eligibility for Vermont Credits and Refunds: Eligibility to claim credits like the earned income tax credit or other income-based relief often depends on your AGI. A lower AGI may increase your refund, while a higher AGI could reduce or eliminate credits.
  
  

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Understanding how your Vermont income, adjusted gross income, and business structure impact your income tax return helps avoid surprises at the due date. It ensures you properly file with all required forms. Whether planning a payment, tracking your refund, or preparing an amended return, reviewing each detail is crucial—especially since many taxpayers are allowed up to three years to amend errors or claim missed money from overpayments.

Filing Requirements for Tax Return

Filing your Vermont 2021 income tax return as a small business owner depends on your residency status, income level, and how your business income is reported. Below are the specific filing requirements for full-year residents, part-year residents, and nonresidents, along with income thresholds and scenarios requiring additional forms.

Residency Status Determines Filing Obligations

• Full-Year Vermont Residents: If you lived in Vermont all of 2021 and had any gross income—regardless of the source—you must file a Vermont return if your income meets the minimum filing threshold.
  
  
• Part-Year Residents: You must file if you lived in Vermont for part of the year and earned income while a resident or earned Vermont-source income while living elsewhere.
  
  
• Nonresidents: Required to file if you had any Vermont-source income (such as profits from a Vermont-based business or rental property) even if you lived out of state the entire year.

Income Thresholds Trigger Filing

• Minimum Income Levels Match Federal Requirements: If your gross income exceeds the federal filing threshold based on age and filing status, you're generally required to file in Vermont.
  
  
  
  •  Example: A single filer under 65 with income over $12,550 in 2021 must file.
    
    
• Self-Employment Income Applies: Even if your income is below the federal threshold, having more than $400 in self-employment income may still trigger a federal filing obligation—which can trigger a Vermont filing requirement if you're a resident or earned Vermont-source income.

Business Structures May Require Additional Forms

• Sole Proprietors: Report income on your return (Form IN-111) using federal Schedule C as a reference.
  
  
• LLC Members and Partners: Must file Form BI-471 (Business Income Tax Return) and include Schedule K-1VT for each member or partner to report their share of income.
  
  
• S-Corporation Shareholders: Vermont follows federal pass-through taxation rules; Form BI-471 and K-1VT are required for S-corporations with Vermont-source income.
  
  
• Multistate Business Owners: If your business operates in multiple states, you may need to complete allocation and apportionment schedules to calculate Vermont-taxable income accurately.

Filing requirements can be complex, especially when business income and multistate operations are involved. Always use the correct forms based on your business structure and residency status to comply with Vermont’s tax laws.

Required Forms and Schedules for Tax Filing

When filing your 2021 Vermont income tax return as a small business owner, it's crucial to understand which forms and schedules apply to your business structure. Each form serves a specific purpose depending on how your business is set up and how income is reported. Below is a breakdown of the required forms and schedules you may need to include:

• Form IN-111 (The Core Personal Income Tax Return): This is Vermont’s main individual income tax form. If you’re a sole proprietor or single-member LLC, you’ll report your business income directly on your federal return (typically via Schedule C) and then transfer relevant figures to Form IN-111. Vermont uses this form to calculate your state income tax liability, incorporating your federal adjusted gross income (AGI) as the starting point.
  
  
• Form BI-471 (Required for Pass-Through Entities): If your business is a partnership, multi-member LLC, or S corporation, you must file Form BI-471, Vermont’s Business Income Tax Return for pass-through entities. This form reports the entity's total income, deductions, and credits and allocates each member’s revenue share through Schedule K-1VT. Even though the entity generally doesn’t pay tax, this filing is still mandatory to meet state requirements.
  
  
• Schedule K-1VT (Income Allocations for Owners and Members): This schedule is issued to each partner, member, or shareholder in a pass-through entity. It shows their share of Vermont-sourced income, losses, and credits, and must be filed with the recipient’s return (Form IN-111). It ensures Vermont receives accurate data on income earned within the state, even for nonresidents.
  
  
• Vermont-Specific Schedules: Credits, Adjustments, and More: Depending on your business activities or residency status, you may also need to include additional Vermont schedules, such as:
  
  
  
  • Schedule IN-112 (used for allocating income if you're a part-year or nonresident),
    
    
  • Schedule IN-113 (for adjustments to federal AGI),
    
    
  • Schedule IN-114 (for applying business-related or other Vermont tax credits).

Each helps refine your final tax liability and can be critical to ensuring you claim all available benefits and remain compliant.

Understanding which Vermont forms apply to your business structure can save you from costly errors or missed deductions. Always review the Vermont Department of Taxes’ instructions or consult a tax professional to ensure your return is accurate and complete.

Preparing to File Your 2021 Tax Return

Before filing your 2021 Vermont income tax return as a small business owner, it’s crucial to lay the groundwork with a well-organized set of documents. This step ensures accuracy, avoids delays, and smooths the transition from federal to state filing. Here's what proper preparation should include:

• Document Your Business Income Clearly: Gather all income statements, such as sales reports, bank deposit summaries, and profit-and-loss statements. Whether you’re a sole proprietor or LLC member, Vermont requires a complete and accurate picture of your business earnings for 2021.
  
  
• Track and Categorize Expenses with Receipts: Compile receipts and records for deductible expenses like office supplies, advertising, equipment, mileage logs, and utilities. Not only will this reduce your taxable income, but it will also help support your deductions if the Vermont Department of Taxes ever reviews your return.
  
  
• Include Payroll Records and Employee Compensation Data: If you paid employees or contractors in 2021, collect payroll summaries, pay stubs, and employer tax filings. These are especially important if you claim payroll-related credits or file Vermont business forms like BI-471.
  
  
• Complete Your Federal Return First: Vermont tax forms require figures directly from your federal tax return—especially your Adjusted Gross Income (AGI). Finish your federal return before tackling Vermont’s, so you can accurately transfer income, deductions, and tax calculations to your state forms.
  
  
• Organise W-2s, 1099s, and Supporting Documents: W-2s for employees, 1099s for contractors, and any 1099-K or 1099-NEC forms should be gathered and cross-checked for accuracy. The Vermont Department of Taxes reviews these closely to verify that all taxable income has been reported.

Preparing thoroughly now saves time later and helps you file with confidence—especially if you're managing both personal and business income in one return. Clear, complete records are your strongest tool for avoiding errors, audits, or unexpected tax bills.

Completing the Tax Return for 2021

Filing your Vermont state income tax as a small business owner starts with correctly transferring your federal return data, identifying the deductions and credits you qualify for, and calculating your final tax obligation or refund. Here's how to navigate each step with accuracy and confidence:

• Transfer Your Federal AGI and Key Figures to Vermont Forms: The foundation of your Vermont income tax return is your federal Adjusted Gross Income (AGI).
  
  
  
  • Start with a completed IRS Form 1040 or 1040-SR, including all attached Schedules (especially Schedule C for sole proprietors or Schedule E for rental/pass-through income).
    
    
  • Your federal AGI (line 11 on Form 1040) flows into Vermont’s Form IN-111, Line 1, and is the starting point for calculating Vermont taxable income.
    
    
  • Also, transfer key federal figures such as self-employment income, business expenses, and net operating losses, as they influence Vermont adjustments.
    
    
  • If your business files through an entity like an S-corporation or partnership, you'll need data from Schedule K-1 and BI-471 to properly reflect pass-through income on your Vermont return.
    
    
• Apply Business Deductions and Vermont-Specific Credits: After transferring your federal numbers, apply state-level adjustments and credits tailored to Vermont taxpayers.
  
  
  
  • Vermont generally mirrors most federal deductions, but review Schedule IN-112 for state-specific subtractions or additions (e.g., adjustments for bonus depreciation, interest income from U.S. obligations).
    
    
  • Standard small business deductions include:
    
    
    
    • Home office expenses (if not already taken on federal return)
      
      
    • Business mileage and vehicle costs
      
      
    • Depreciation adjustments based on state conformity rules
      
      
• Vermont offers targeted tax credits, including:
  
  
  
  • Research & Development Credit (Schedule BA-406)
    
    
  • Business Solar Energy Credit
    
    
  • Downtown and Village Center Program tax credit (for qualified rehab projects)
    
    
• Check eligibility on the Vermont Department of Taxes website before claiming.
  
  
• Calculate Your Vermont Tax Liability or Refund: Once all figures and credits are applied, you’re ready to determine how much you owe—or how much you’ll get back.
  
  
  
  • Vermont uses a progressive tax rate structure for individuals, including sole proprietors and LLC members filing as individuals.
    
    
  • Use Form IN-111, Lines 6–14, to compute your Vermont taxable income, then apply the appropriate rate.
    
    
  • Subtract withholdings, estimated payments, and credits already applied during 2021.
    
    
  • If you overpaid, Line 30 will show the refund amount; if you underpaid, Line 29 will reflect your balance due.
    
    
  • Be aware of the use tax section if you made out-of-state purchases for your business without paying sales tax.

Completing your Vermont tax return ensures you avoid penalties and claim every deduction and credit you’re entitled to. Taking the time to cross-check your figures with both federal and state requirements can result in real savings and peace of mind.

Filing Options for Income Tax Return

When filing your 2021 Vermont income tax return as a small business owner, choosing the proper submission method can impact both the speed of processing and the accuracy of your filing. Below are the main filing options available, including their benefits and step-by-step considerations.

Faster Processing & Fewer Mistakes: Why e-Filing is Preferred

• Vermont’s electronic filing system (e-file) allows small business owners to submit their income tax returns securely online.
  
  
• The Department of Taxes prioritizes electronically filed returns, meaning refunds are often processed in less than half the time compared to paper returns.
  
  
• Built-in error checks in e-file software reduce the risk of calculation mistakes, missing forms, or incomplete schedules.
  
  
• You receive immediate confirmation that your return was received—something not guaranteed with paper mail.
  
  
• E-filing is available through most commercial tax software or Vermont’s myVTax portal (https://myvtax.vermont.gov).

Cost-Saving Option: Vermont Free File Program

• If your adjusted gross income (AGI) was $73,000 or less in 2021, you may be eligible to file your federal and Vermont returns for free using Vermont’s Free File program.
  
  
• Vermont partners with select tax software providers (like TaxAct or FreeTaxUSA) to offer this service.
  
  
• Eligibility varies by provider—some require specific age or income thresholds—so use the Department of Taxes’ Free File look-up tool to find a match: tax.vermont.gov/free-file.
  
  
• This is especially helpful for sole proprietors or LLCs filing via Schedule C on their federal return and transferring those figures to the Vermont IN-111.

Traditional but Slower: How to File by Paper

• Paper filing is still an option for those who prefer physical documentation or do not qualify for e-file services.
  
  
• You must download the correct forms (e.g., IN-111, BI-471, K-1VT) from the Vermont Department of Taxes website and ensure all applicable schedules are included.
  
  
• Mailing Address (as of 2021):
  
  
  
  • If a payment is enclosed:
    Vermont Department of Taxes
    PO Box 1779
    Montpelier, VT 05601-1779
    
    
  • If no payment is enclosed:
    Vermont Department of Taxes
    PO Box 1881
    Montpelier, VT 05601-1881
    
    
• Be sure to use the correct address—mailing to the wrong PO box may delay processing by several weeks.
  
  
• Always use a tracked mail service to confirm delivery, and retain a full copy of your return for your records.

Choosing the correct filing method depends on your business needs, eligibility, and how quickly you want your return processed. For most small business owners, e-filing offers speed and accuracy, while the Free File program adds affordability. However, paper filing remains viable if you prefer a traditional route or lack internet access.

Paying Your Income Tax

When settling your 2021 Vermont income tax bill, small business owners have a few different payment methods available—each with its own process, convenience, and potential fees. Here’s how to pay your income tax efficiently and comply with the Vermont Department of Taxes.

Pay through the myVTax Portal for Secure Online Payments: The most streamlined way to pay is online via the myVTax portal. This official platform allows individual taxpayers, LLC members, and other small business filers to:

• Pay tax balances directly from a checking or savings account (ACH debit)
  
  
• Set up payment plans (if approved)
  
  
• Access account history and balance details
  
  
• Ensure payments are recorded instantly, reducing the risk of delays or penalties.

To access this feature, you must create or log in to your myVTax account. Payments submitted through the portal receive immediate confirmation and can be tracked in your online dashboard.

Use ACH Debit or Credit Card – Know the Fees: If you prefer not to log into the portal but still want to pay electronically, you can opt for:

• ACH debit (e-check): Typically, no fee is charged if processed through the Department of Taxes system.
  
  
• Credit or debit card: Payments via card are processed through an external vendor and incur a service fee (usually a percentage of the payment amount). The state does not collect this fee, which is non-refundable.

ACH debit is ideal if you're aiming for a no-fee, direct-from-bank transaction, while credit cards offer convenience with a cost.

Mail Checks or Money Orders with the Correct Voucher: If paying by mail, you must include:

• A check or money order payable to “Vermont Department of Taxes”
  
  
• The correct payment voucher (Form IN-116 or other applicable, depending on the business entity type)

The mailing address is printed on the voucher and may vary depending on whether you owe tax or are sending other documents. Always double-check the instructions on the voucher to avoid misdirected payments. Payments mailed without the proper voucher can lead to delays in processing and potential misapplication of your payment.
Vermont offers multiple tax payment options to suit different business needs. Whether you want the convenience of online payments, the structure of an ACH transfer, or prefer mailing a physical check, just ensure you’re using the correct method, form, and timing to avoid unnecessary fees or delays.

Tracking Refunds and Balances for Your Vermont Income Tax Return

Tracking your Vermont income tax refund or balance is essential for maintaining accurate records and avoiding penalties or unnecessary stress. Here’s how Vermont small business owners can stay on top of their 2021 tax return status, using official tools and timelines from the Vermont Department of Taxes.

• Check Status Through myVTax Portal: Log into the myVTax portal and select “Check the Status of Your Return or Refund” from the homepage. You'll need your Social Security number (or Federal Employer Identification Number) and the exact refund amount or tax year. The system will display your current balance, refund progress, or any issues requiring action.
  
  
• E-Filed Returns Typically Processed Within 4–6 Weeks: Most electronically filed Vermont income tax returns are processed in 4 to 6 weeks, assuming no errors or additional reviews. E-filing speeds up processing and reduces the risk of transcription errors that can delay refunds.
  
  
• Paper Returns Can Take Up to 10–12 Weeks: Paper-filed returns often take 10 to 12 weeks or more to process, especially during peak tax season (February–April). The delay results from manual data entry, higher volumes, and additional time needed for verification.

Common Reasons Refunds Are Delayed

• Missing or Incorrect Information: Typos in names, tax IDs, or bank account numbers can trigger manual review.
  
  
• Unfiled Prior-Year Returns: Vermont may withhold your refund if you haven’t submitted previous tax returns.
  
  
• Math Errors or Incomplete Forms: Miscalculations or skipped schedules lead to flagging and review.
  
  
• Outstanding Tax Debts: If you owe past taxes to Vermont or the IRS, your refund may be applied toward those debts.
  
  
• Manual Verification for Identity Protection: If the return triggers fraud prevention systems, additional verification will be required before processing.

Tracking your Vermont tax return through myVTax gives you real-time visibility into your financial standing with the state. To avoid delays, always review your filing details carefully and opt for electronic filing whenever possible.

FAQs

What if I missed the 2021 Vermont income tax return due date?

If you missed the filing deadline for your 2021 Vermont income tax return, you should file as soon as possible to reduce penalties and interest. Vermont allows late filings, but penalties may apply if tax is owed. You can request a payment plan through the myVTax portal. Even if you can’t pay immediately, filing helps avoid additional enforcement actions. For guidance, consult the Vermont Department of Taxes.

Can I deduct home office expenses in Vermont?

Vermont follows federal guidelines for home office deductions. If you claim a home office deduction on your federal return and meet IRS criteria (regular and exclusive business use), it will be carried over to your Vermont return. Sole proprietors typically report this on Schedule C, which affects your federal AGI—the starting point for Vermont income tax. Keep detailed records to support your deduction in case of an audit.

How do I amend my 2021 Vermont income tax return?

To amend your 2021 Vermont personal income tax return, file Form IN-111 with the “Amended Return” box checked. Include updated schedules (such as Schedule IN-112 or K-1VT) and a copy of your amended federal return, if applicable. Use myVTax to file electronically or submit by mail. Be sure to explain the reason for the amendment and include supporting documents. You must file within three years of the original deadline.

What Vermont-specific credits are available to small business owners?

Vermont offers several credits that may benefit small business owners, including the Business Solar Energy Investment Credit, the Downtown and Village Center Credit, and the Research and Development Tax Credit. Eligibility and filing requirements vary. Most are claimed using Schedule IN-112. Some credits may be limited or require pre-approval, so review the Vermont Department of Taxes guidelines or consult a tax professional before applying them to your return.

What happens if I can’t pay the full Vermont income tax owed?

If you can’t pay your full 2021 Vermont income tax bill, file your return anyway to avoid late filing penalties. Then, apply for a payment plan through the myVTax portal. Vermont allows installment agreements for qualified taxpayers. Interest and late payment penalties will still accrue, but you can avoid further collection actions. Paying as much as possible up front can reduce what you owe over time. Don’t ignore the debt—options are available.