Demystifying Taxes For Your Business

2 min read
24 April 2024

Demystifying Taxes For Your Business

Navigating the complexities of business tax filings can be time-consuming and confusing, particularly for new entrepreneurs and business owners alike. That’s why it’s important they have a firm grasp of the intricate landscape of federal, state, and local tax requirements.

Here, we offer a breakdown of these tax types and what they entail:

  • Federal Taxes

Businesses are required to file federal income taxes, typically through four estimated tax payments due before the April 15 deadline. These payments are calculated based on the previous year's income. Failing to make these quarterly payments or meet IRS safe harbor requirements incurs substantial penalties during filing.

  • Self-Employment Taxes

Business owners, depending on their business structure, may be liable for self-employment tax. Unlike traditional employees, self-employed individuals don't have payroll taxes withheld from their income, necessitating careful consideration in annual tax filings. The self-employment tax obligation often leads business owners to make estimated tax payments throughout the year.

  • Payroll Tax

When a business employs individuals, it assumes the responsibility of withholding a portion of their earnings, directing it to the IRS on their behalf. These withholdings encompass contributions to various federal programs such as Social Security, Medicare, and Unemployment Insurance. Furthermore, they cover federal income taxes, with each employee's tax liability varying based on their income and filing status.

  • Excise Tax

Depending on the goods or services they offer, businesses may need to remit an excise tax upon their sale. Typically, this tax is factored into the goods' price. The IRS mandates this tax on various items, including fuel, airline tickets, heavy trucks and highway tractors, indoor tanning services, tires, and tobacco products.

  • State-Level Taxes

Just like federal income taxes, a business's state income tax liability hinges on its structure. While some states mandate businesses to pay income tax, others do not. It's crucial to consult your state's department of revenue or a similar agency website to grasp the specific income tax obligations.

  • Employment Taxes

Certain states mandate businesses to withhold additional wages to fund state programs like disability insurance. Online tools and calculators are available to help determine the precise amounts of state and federal employment taxes that must be withheld.

  • Sales Tax

Most states mandate businesses to levy a sales tax on certain items, with some items subject to special taxes while others adhere to a general sales tax. When selling on the buyer's location. This stems from a recent U.S. Supreme Court ruling granting states the authority to collect sales tax from online sellers who lack physical presence within the state but conduct transactions with state residents.

  • Local Taxes

Local municipalities may impose various taxes targeting business owners, with property taxes being the most common, though specifics can vary by location. It's prudent to consult your city or county clerk for insights into local small business tax requirements.

Comprehending your tax obligations is vital for effective business management. Keeping abreast of tax code changes may necessitate utilizing tax preparation software or engaging a payroll company. Many small business owners opt to hire an accountant to ensure accurate tax filing and payment. Accountants streamline tax-related tasks and offer services ranging from tax filing to financial advice, making them valuable assets for long-term business success.