Taxes, Taxes Everywhere Here are small business Taxes Your Business Will Need To Be Aware of
As a business, there are several different small business taxes you will need to be aware of. Failure to pay and collect appropriate taxes can cause a lot of trouble with the IRS.
Employment Taxes
If you have employees, you will have to pay employment taxes – taxes that you withhold from your employees’ wages to pay local, state, and federal taxes.
The type of state and local taxes vary depending on the city and state. Federal taxes include the following:
- Federal income tax withholding: Withholding acts as a prepayment of tax an employee will owe at the end of the year. A refund is issued if the withholding was greater than the tax owed.
- Social Security and Medicare taxes: You withhold ½ of these taxes from your employees’ income and then you must pay a matching amount.
- Federal unemployment tax (FUTA): This pays for unemployment compensation to workers who lose their jobs. This tax is paid separately from the other Federal taxes and comes entirely from your own pay.
Finally, at the end of the year, you must complete Form W-2, Wage and Tax Statement to report all monies paid to your employees, as well as taxes withheld.
A copy of the form is given to the employee and to the Social Security Administration.
Self-Employment Tax
Self-employment tax (SE tax) is a social security and Medicare tax used for those that work for themselves.
You can deduct half of your SE tax when determining your adjusted gross income, but you cannot deduct your social security or Medicare taxes.
The Schedule SE for the current year will always give you the up-to-date rate for that year.
To pay the SE tax, you must be self-employed. To be considered self-employed, you must be using your business to make a profit.
Even if your business does not make a profit, as long as your activities are in place to do so, then you are self-employed.
Your business activities can be full or part-time to qualify
C Corporation and S Corporation Taxes
C Corporation taxes are taxes based on profits and losses and taxed directly to the company.
The formula for determining the tax is complicated and should be calculated by a CPA to avoid IRS penalties.
S corporation taxes are taxes based on profits and losses but are reflected on the owners’ personal income tax returns.
Once again, this is a difficult tax to calculate and using a CPA is recommended.
Sales Taxes
A sales tax is charged at the point of purchase for certain goods and services. If you have a brick and mortar store, sales tax is easy to determine.
You simply charge your customers the sales tax required by your jurisdiction.
For online business, you may need to pay sales tax if you have a nexus in that state.
A nexus. A nexus is a physical presence in a state, such as a store, office, or warehouse.
If you do not have a nexus in a state and sell online, you may not have to collect sales tax.
Each state defines a nexus differently, so you should contact your state’s revenue agency to determine if you will need to collect sales taxes.
A common challenge to most start-up entrepreneurs is complying with the Internal Revenue Service and ever changing regulations.
That is why it is so important for you to work closely with a CPA to keep your business in compliance.
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Tax Tips For Small Businesses
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