Just like consumers, businesses must pay a few kinds of taxes. Business owners are subject to federal, state, and local taxes. They’ll also be subject to different taxes depending on their business activities. Whether business owners are just getting off the ground and they want to find out what to expect or their business models have changed, they can read on to find out what they need to know about paying taxes so that they won’t be blindsided when it comes time to pay up.
What Business Owners Need to Know About Income Taxes
Businesses pay taxes on their companies’ profits, just like workers pay income taxes. Profit is defined as the business’s income minus its deductible expenses. The best way to deal with income taxes is to get tax services here, but most business owners also want to know what their tax experts are doing to protect their interests.
Income taxes come in different forms. Small businesses structured as sole proprietorships or single-member LLCs, S-corporations, and partners pay their taxes through a process known as a pass-through tax. They’ll deal with their business taxes through their personal income tax returns by filing a Schedule C form.
Multiple-member LLC owners will have to file a little differently. They’ll file a partnership business tax return, then pay their share of the company’s income taxes on their personal returns.
What Business Owners Need to Know About Sales Tax
Although technically businesses don’t pay the sales tax directly, they still must collect, report, and pay sales taxes in certain states. The money comes from their customers but the companies make sure it makes its way to the department of revenue. Many states also require businesses to pay sales tax for items sold online, so don’t forget to collect and report sales tax from online customers.
What Business Owners Need to Know About Property Tax
If a business owns the real estate that houses its operations, the business will have to pay property tax. This tax is collected locally through the city or county and is based on assessed value. Business owners should also keep in mind that they’ll be subject to special considerations should they sell a piece of property owned by the business, including capital gains taxes.
What Business Owners Need to Know About Payroll Taxes
Payroll taxes work like sales taxes. They’re collected by the business, reported to the appropriate authorities, and paid. Payroll and employment taxes include FICA taxes for Social Security and Medicare, unemployment, and workers’ compensation taxes.
Just like sales tax is paid by the customers but reported by the business, payroll taxes are paid by employees and reported by their employers. Payroll taxes go to the IRS and the Social Security Administration, though, not the local revenue office.
The Bottom Line
The four categories of taxes described above cover the basics of what business owners should expect to pay. Depending on what kind of businesses they own and where they operate, they may be subject to other kinds of taxes. Businesses operating in some states are subject to gross receipts taxes instead of or in addition to income taxes.
Franchise taxes are similar to gross receipts taxes, but they’re determined based on the company’s value and do not apply to sole proprietorships. Corporate shareholders must pay dividend taxes on the money they make from their stake in the company, and LLC owners must pay self-employment taxes. The bottom line is that business taxes are complex and best handled by a professional.