Tennessee franchise and excise tax: 6.5% excise tax on net earnings + 0.25% franchise tax on net worth. Does not conform to federal bonus depreciation.
Key Planning Insight:
Tennessee has no individual income tax. However, the franchise and excise tax applies to most businesses. Tennessee issued guidance in December 2025 on its treatment of bonus depreciation — requiring add-backs.
Tennessee-Specific Tax Strategies
These strategies are especially powerful or unique in Tennessee. Click any strategy to learn more.
Tennessee has no individual income tax (the Hall Tax on investment income was fully repealed in 2021). Establishing Tennessee domicile eliminates all state income tax on wages, business income, and investment income. Tennessee also has no estate or inheritance tax.
Tennessee's Franchise & Excise Tax applies to most businesses: the excise tax is 6.5% of net earnings, and the franchise tax is 0.25% of net worth (minimum $100). Planning strategies include entity structuring, apportionment optimization, and qualifying for small business exemptions.
S-Corp owners must pay themselves a "reasonable salary" subject to payroll taxes (15.3%), but remaining profits distributed as shareholder distributions avoid self-employment tax entirely. Optimizing the salary-to-distribution ratio is one of the most impactful tax strategies for business owners earning $60,000+ in net profit.
Tax-loss harvesting involves selling investments at a loss to offset capital gains and up to $3,000 of ordinary income per year. Unused losses carry forward indefinitely. This strategy is especially powerful when combined with portfolio rebalancing and can significantly reduce your annual tax bill.
Section 179 allows businesses to deduct the full purchase price of qualifying equipment, vehicles, and software in the year of purchase rather than depreciating over time. The 2026 federal limit is over $1 million. Some states cap or limit Section 179 conformity — check your state rules.
Choosing the right business structure is the single biggest tax decision you'll make. Here's what Tennessee LLC and S-Corp owners need to know.
Tennessee LLC Formation
Tennessee has no state income tax, making it one of the most LLC-friendly states in the country. LLCs here avoid state-level pass-through income tax entirely — your only tax exposure is federal.
LLC vs. S-Corp in Tennessee
Tennessee does not currently offer a PTET election. LLC owners should focus on S-Corp election to reduce self-employment taxes, and maximize federal deductions like Section 179, home office, and retirement contributions.
Top LLC Write-Offs in Tennessee
Tennessee LLC owners can deduct: business expenses (IRC §162), home office (IRC §280A), vehicle mileage (IRC §179), Section 179 equipment expensing, retirement contributions (Solo 401k or SEP-IRA), health insurance premiums, and business meals. Note: Tennessee does not conform to federal bonus depreciation — an add-back on your state return may be required.
Tennessee Business Tax Note
Tennessee franchise and excise tax: 6.5% excise tax on net earnings + 0.25% franchise tax on net worth. Does not conform to federal bonus depreciation.
These federal strategies apply to Tennessee residents and business owners. Click any strategy to see full details, savings estimates, and eligibility requirements.
Common questions about Tennessee LLC taxes, S-Corp elections, and business write-offs — answered by Uncle Kam's tax advisors.
No. Tennessee is one of the states with no individual income tax. This means business owners and self-employed individuals only pay federal income taxes on their earnings. However, you should still maximize federal deductions — strategies like S-Corp election, Section 179, and Solo 401(k) contributions are especially valuable here.
The most powerful write-offs for Tennessee LLC owners include: the S-Corp election to reduce self-employment taxes, Section 179 and bonus depreciation for equipment and real estate, the home office deduction, vehicle and mileage deductions, Solo 401(k) or SEP-IRA contributions, and business meals and travel. Tennessee-specific strategies like the PTET election and state-specific credits can add further savings.
Tennessee does not currently offer a pass-through entity tax (PTET) election. However, there are still powerful federal strategies available to Tennessee business owners to reduce their overall tax burden. Book a free strategy call to explore your options.
Tennessee does not fully conform to federal bonus depreciation rules. You may need to add back bonus depreciation on your Tennessee state return and depreciate assets over a longer schedule. However, Section 179 expensing may still be available up to Tennessee's state cap. A tax advisor can help you navigate this.
For most Tennessee business owners earning over $60,000 in net profit, electing S-Corp status can save $5,000–$20,000 per year in self-employment taxes. The right choice depends on your income level, Tennessee's franchise or minimum tax requirements, and your business structure. Uncle Kam's advisors specialize in Tennessee entity structuring — book a free call to get a personalized recommendation.
Self-employed individuals in Tennessee can reduce state taxes by: maximizing business deductions (home office, vehicle, equipment), contributing to a Solo 401(k) or SEP-IRA, electing S-Corp status to reduce self-employment tax, using the PTET election if available, and timing income and deductions strategically. A Tennessee-based tax strategy session with Uncle Kam can identify your biggest opportunities.
Real estate investors in Tennessee benefit most from cost segregation studies (accelerating depreciation on commercial and rental properties), the 1031 exchange (deferring capital gains on property sales), bonus depreciation (if Tennessee conforms), the short-term rental loophole, and real estate professional status (REPS). Tennessee's specific tax rules can significantly impact your real estate ROI — get a free strategy review from Uncle Kam.
