According to data, approximately $1 trillion is paid in income taxes every single year.
As a small business owner, it's
important to understand the different types of taxes that you'll need to pay.
The tax code can be confusing and overwhelming, especially for small business owners who are already busy running their businesses.
But don't worry. This guide will
provide you with an overview of the different kinds of taxes that small
businesses pay. This includes income tax, self-employment tax, and more.
Sales
Tax
One of the most common taxes for
businesses to pay is sales tax. Sales tax is a percentage-based tax imposed on
all retail sales, leases, and rentals of tangible personal property.
In other words, it's a transaction
fee that consumers pay when purchasing goods from the business owner.
Sales tax varies from state to
state. But generally, small business owners pay a percentage of the total gross
income from their businesses.
In most states, you pay taxes
monthly or quarterly, and you remit directly to the state's revenue department.
And as a small business owner, you'll have to write a check for sales tax every
month.
If you sell products online (meaning
via an eCommerce website), you must understand sales tax laws because they
pertain to remote sales.
For example, when you ship or
deliver goods across state lines. Internet Sales Tax 101 explains in detail
what happens if you're conducting eCommerce in many states.
Note that a handful of states have
"Amazon Laws" which impose tax collection responsibilities on online
retailers.
In some cases, small businesses
don't need to pay sales tax at all. Many states exempt small businesses from
paying sales tax as long as their yearly revenue is less than a certain
threshold amount.
If you're unsure whether you need to
collect and remit sales tax, you should contact the state's revenue department
directly.
And, you should also look into multi state sales tax services
to help simplify sales tax for you and your business.
Small
Business Self-Employment Taxes
Self-employment taxes are another
type of payment. As the name implies, they're paid by self-employed business
owners who don't have an employer to deduct and contribute to social security.
The good news is that small business
owners can deduct half of their self-employment taxes on line 27 of their 1040
tax return.
Self-employed individuals are
required to pay 15.3% in self-employment taxes on net earnings, up to $118k in
2013; i.e., anything above this amount isn't taxed for social security
purposes.
Note that there are deductions
available for taxpayers earning income beyond certain limits.
These limits increase each year due
to inflation, so it's worth looking into what those limits were for the year
you're filing taxes.
Payroll
Tax
Another common type of tax that some
small businesses are subject to is payroll tax. The government charges
employers taxes to help pay for Medicare, Social Security, and other benefits.
They include items such as federal
income tax withholding, FICA (employee part), and FUTA (employer part).
The money you need to take out of
your paycheck and send to the government will depend on what services you
provide to the business.
Payroll tax is a way to collect
money from employees to pay for social security and unemployment benefits.
Employees usually pay this tax through deductions from their paychecks, or by
making quarterly filings.
If employees are able to get social
security or benefits, then you may be responsible for making quarterly filings.
Property
Tax
When a small business owns the
property, such as land or buildings, this is subject to property tax. The
government imposes these taxes to maintain public services like roads and
schools.
The amount of money that you need to
pay is based on the assessed value of the property. This is something the
government officials will determine at annual revaluations.
Business owners must file reports
with their local county assessors' offices each year.
There may also be many taxing
districts involved in collecting this type of tax. Despite this, some
governments may collect it themselves rather than through separate governing
bodies.
Income
Tax
Businesses that make a certain
threshold of income may be required to file a tax return. Income tax is a
progressive tax imposed on the business and its owners based on taxable profits
earned in the year.
The amount of money that must be
paid will depend on what type of filing status the business falls under, as
well as how much net income was earned for that period.
There are different types of filing
statuses, including individual, joint, trust, or corporation. The most common
type is the "individual" status because this is usually how one
person operates their business.
An individual must first calculate
taxable income based on Schedule C to determine if they need to file a return.
This will depend on whether or not
the business made money (or had losses). It'll also be dependent on how many
net earnings were earned after all allowable deductions are factored into the
equation.
If the amount of income is high
enough, then an individual may be subject to self-employment taxes as well.
Corporations also have filing
requirements depending on what criteria are met during any given year.
Generally speaking, corporations
that make $1 million or more in annual revenue must submit their tax returns by
April 15th each year.
However, if the corporation only has
$100k-$250k in gross receipts, it can for an automatic six-month extension.
Understand
the Different Types of Taxes
These types of taxes are important
for any business to pay to ensure that they are contributing to the community.
But, there are many different types of tax rates and filing requirements based
on your business.
Before you start filing taxes and
paying taxes, make sure that you understand how these things will affect you
and your business!
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