They always say nothing is guaranteed in life, except death and taxes. Unfortunately, that rings true for your business as well. Once you start a business you will inevitably be responsible for paying federal, and possibly state taxes. So, it is important that you have a general understanding of each tax category and when it may apply. In this article, we will go over the basics of the most common types of businesses taxes.
How much and when you pay your taxes will depend on you business structure, but generally there are three types of federal business taxes.
1. Income Taxes
All businesses must file annual income tax returns. C corporations are assessed at the corporate rate, while other businesses, like LLCs, Partnerships and Sole Proprietorships, are treated “pass-through” entities and thus, are taxed at the individual rate.
2. Estimated Taxes
Since freelancers, independent contractors and small business owners are taxed at the personal rate most of their income is not subject to withholding. So if you fall into this category and expect to owe a minimum of $1,000 you should estimate the amount that will be due and pay quarterly taxes. If you underpay or don’t pay at all you run the risk of being hit with penalties and interest. As such, it is important that you keep track for your finance (including interest, dividends, and retirement contributions), estimate as correctly as possible, and make note of the upcoming deadlines.
|When You Get Paid||Tax Due Date|
|Jan. 1–March 31||April 15|
|April 1–May 31||June 15|
|June 1–Aug. 31||September 15|
|Sept. 1–Dec. 31||January 15 of the following year|
3. Employment Taxes
Freelancers, independent contractors and other self-employed business people are required to pay self-employment taxes, which are Social Security and Medicare taxes.
You are required to pay self-employment taxes if:
- Net earnings are greater than $400 OR
- You work for a qualified church-controlled organization that:
- Applies a Social Security and Medicare tax exemption AND
- Pays you $108.28 or more in wages.
This does not apply to pastors or nuns.
If you have employees, you may also be required to pay into the following:
- Federal income tax withholding
- Federal unemployment (FUTA) tax to ensure that unemployed employees can receive unemployment benefits after losing their job.
- Workers’ compensation insurance
4. Excise Taxes
The federal government also imposes an excise tax on businesses that manufacture or sell certain products, such as heavy machinery, alcohol/tobacco, and other products.
State and Local Taxes
Depending on your state, you may also be subject to state and local taxes. The type and amount of your tax liability will be different depending on your location. You should pull in an experience business tax attorney for help determining your tax process. The three main state and local taxes to watch out for are:
- State income taxes: Fortunately, Florida is one of the few states that does not have a state income tax. More others do, however, so be sure you read up on their requirements and withhold money accordingly.
- Sales & Use taxes: If you sell things, you’ll be responsible for collecting sales taxes. Some states assess tax based on where the seller is located, while other states make the determination based on where the buyer is. Usually, food, medicine, and utilities do not incur sales tax. You may incur sales tax on goods or use services purchased from out of states.
- Property taxes: Each state has a different classification standard for determining what property is taxable. Some tax businesses operating in commercial real estate locations and others tax vehicles, computer equipment, and other business assets. The amount paid is calculated based on either a set percentage of value or the total value of the property.
Capital Partners Law can help advise and guide you through any questions you might have about federal, state or local taxes, contact us today.
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This article is for informational purposes only. It does not create an attorney-client relationship with any reader nor should it be construed as legal advice. If you need legal advice, please contact our firm.