Every business needs to pay all sorts of taxes. Business taxes vary in complication. Some are simple to understand, while others are more complex. The business taxes you pay will come in several varieties, inclusive of federal, state, and local levels. Even within those buckets, tax types will vary depending on your business entity.
Types of Taxes a Small Business Typically Needs to Pay
Business Income Tax
Every business has a requirement to pay tax on its income. When your business makes a profit, the tax you pay will vary depending on that number and type of entity. The majority of small businesses are what are known as pass-through entities. A pass-through entity has gains or losses that end up passing through to the owners on their respective personal tax returns.
Self-Employment Tax
Self-employment tax is suitable for a small business made up of a sole proprietorship. The owners of the small business, in this case, end up recognizing their taxes on their individual tax returns as stated in the prior section. In addition, self-employment taxes are a separate line item getting recognition from sole proprietors.
Corporation Income Tax
Even as a small business, you may have a legal entity set up where you are considered a corporation. In this instance, the corporation will be paying the income tax on its own. Income tax, in this case, is separate from the individuals. Net income from a corporation has no taxable component unless the income gets distribution to shareholders in dividends.
Real Estate Property Taxes
Real estate property taxes are in play for businesses. Your business, no matter its size, may own real property or real estate. The property may be a building or something similar. When you own property, you need to pay property tax. The local taxing authority where the property resides will have a formula where they will assess the value and make a determination on the amount you pay in taxes.
Sales Tax You Pay for Products and Services Sold
Businesses will not pay sales tax at the state level when they sell a product or a service. Certain states, though, will require that you collect what is known as state income tax. In this case, the requirement is a system that needs installation, allowing you to collect sales tax from your customers. When you collect the sales tax, you need to report on it, reconcile it against what you sold, and then pay it to the state.
State sales tax needs payment to the department of the revenue in the state requiring it. The recognition is with the basis on location. For example, if you sold a product in Florida, there is no need to recognize state sales tax in Massachusetts on that product. It is only when the product or service is sold in Massachusetts that it is a requirement.
Employment or Payroll Taxes
Ever see a business request the preparation of a payroll tax return? The payroll tax return is necessary for the payment of employment or payroll taxes paid to employees with the basis on their earnings. Employment taxes include payment by employees and employers income federal income tax withholding, federal unemployment taxes, and Social Security and Medicare taxes.
Gross Receipts Tax
One of the final forms of tax that your business will end up paying is the gross receipts tax. This tax will depend on the state you reside. It could be in addition to, or in replacement of, the state income tax. In states where gross receipts tax applies, such as Nevada, you pay taxes on the total amount of revenue you bring in. States may allow you to deduct expenses against this revenue to counter the tax, but not always. Small businesses operating as sole proprietorship are typically exempt from this tax.
There are many examples of small business taxes you need to consider. As you map out your business plan, look ahead to areas where you can grow, you want to consider all the taxes that come into play. The more knowledge you have pertaining to tax requirements, the better off you will be. Understand the various forms of small business taxes and plan accordingly.
