Any business needs to pay several taxes, ranging from federal, state to local. In fact, according to the Internal Revenue Service (IRS), small businesses pay an average of 19.8% in taxes annually, with corporations paying as much as 21%. The rate they pay depends on different business activities they participate in, including selling taxable services or goods, using equipment, owning commercial properties, and making a profit.
Pay what is right, so you don’t get sued by the IRS. When buying a business, hire a lawyer to look at the company’s tax papers thoroughly to avoid costly issues in the future.
Although the amount of taxes you need to pay greatly vary, here are the most common taxes every business owner needs to address.
Income taxes require individuals to pay taxes on salaries, investment income, and other gains from sales of properties they own. However, if you’re running a large corporation, you must pay taxes on your organization’s net income every year. However, if you’re under an LLC, sole proprietorship, or other business entities, you don’t need to pay income taxes.
If you own physical commercial properties, land, or a traditional brick-and-mortar location, you need to pay for business property taxes in the place where your offices are situated.
Employment or Payroll Tax
If you have staff members, you’re responsible for paying for their employment or payroll taxes on their salaries. This tax includes federal income taxes withholding, social security, Medicare, and federal and unemployment tax. If you do not pay on time, you can face hefty penalties or even worse — criminal prosecution.
If you run a business solo, you’re subjected to pay for self-employment taxes, including your social security and Medicare. You’re required to pay self-employment tax if your net income every year is at least $400. Generally, companies pay half of the total amount of taxes for social security and Medicare on their workers’ salaries, with the other withheld from their paychecks. However, as a self-employed individual, you need to pay the whole amount for the taxes yourself.
There isn’t a federal sales tax in the United States, but 45 states and thousands of counties, cities, towns, and other localities require sales tax. The business owner is responsible for calculating, collecting, and sending reports of their sales tax to their local or state governments. Consumers pay sales tax on products and services during the point of purchase.
If your company is in a particular niche or sells certain types of goods or services, you may need to pay excise taxes on all transactions and activities involved. The excise tax is an indirect tax, meaning consumers aren’t the ones directly paying for it. Often, excise taxes are included in the retail price of services or products. If you run a business that requires you to pay excise taxes, you’re going to be the one responsible for collecting the tax fees and send them to the IRS.
As a budding business owner, you need to consider plenty of things when budgeting for your organization. The biggest thing you need to take is the taxes you’re responsible for — and the ones mentioned are just some major ones you need to cover. If you properly plan for these taxes, you’ll be able to focus on other areas of your operations — save money and maximize profit.