If you own a business, no matter how large or small, you also owe taxes. Taxes require a complex understanding of expenses, deductions, and dues owed – which is why most businesses hire a tax expert to help them navigate the sea of taxes.
Even if someone else is doing all your taxes for you, as the business owner, you should still have a working knowledge of the taxes you owe. If you are just getting started as a business, discuss which taxes you will owe with your financial advisor.
Paying Your Business Taxes
Business taxes are much more complex than regular taxes because you aren’t just filing taxes for your business but also for any employees you hire, products you offer, and sales you make.
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You should file taxes at least quarterly for small businesses and if you are self-employed. You will pay these taxes to the IRS through their website. If you fail to make your quarterly payments, you will owe money at tax time as well as a penalty fee. This penalty fee varies depending on your business, the amount owed, and the length of time since you last paid.
5 Common Types of Business Taxes
Here are five standard taxes that you most likely pay in your business.
1. Income Tax
When you pay your income tax, you pay a percentage of your income back to the government.
You don’t base your tax amount on your total income, only your profit. If you take your total income and subtract your expenses, you will know which amount to calculate your income tax.
The owner of a business determines who pays these taxes. If you’re the sole owner of your small business, you pay your income tax on your regular personal tax form. Larger companies or those with partners require different forms.
2. Estimated Tax
When you own a business, no one is withholding taxes from your paycheck. You are entirely responsible for estimating your tax withholdings and paying them regularly on your own.
These estimated taxes include taxes on interest, dividends, rent, alimony, and more. Anyone who owed more than $0 on their previous taxes needs to pay estimated taxes. If someone else employs you, they are responsible for paying your wages and those taxes.
The IRS provides forms that help you calculate your estimated taxes, so you don’t come short at the end of the tax year.
3. Self-Employment Tax
If you work for yourself, you need to pay self-employment taxes every quarter. Generally, self-employment taxes are 15.3% and include your social security tax and medicare tax. These percentages are a portion of your profit.
Some jobs that require self-employment taxes are:
- Contractors
- Freelancers
- Small-business owners
Anyone who earns over $400 a year owes self-employment taxes. If you worked under an employer, the employer would split your payroll taxes with you – lowering your overall taxes. But, when you are self-employed, you are paying both portions yourself.
4. Employment Tax
For larger businesses, you may owe employment taxes. These are taxes paid for having employees in your company.
You are responsible for paying the following taxes as an employer:
- Social security
- Medicare
- Federal income
- Federal unemployment
Sometimes you may fall behind on some of your taxes – like your payroll taxes or federal income taxes. If you find yourself in this situation, address it as quickly as possible.
If you hire an unpaid payroll tax attorney, you can protect your assets if you fall behind on taxes. In addition, your attorney will keep your business from going under or requiring more significant payments than you should pay in penalties.
5. Excise Tax
If you produce certain goods or offer specific services, you may be liable to pay an excise tax. These are also known as consumption taxes or sales taxes in the retail setting.
For example, the government has a fixed tax on alcohol, fuel, and tobacco – meanwhile, a vehicle’s excise tax is a percentage of the resale price.
Here are some common excise tax forms.
- Form 720 – Environment, communications, and transportation taxes.
- Form 2290 – Highway tax for trucks, tractors, and buses.
- Form 730 – Lottery or other wager businesses.
- Form 11-C – For registering for wagering activities.
Keeping Up on Your Taxes
Taxes should be every business’s priority. A company that doesn’t keep up with its taxes can be hit hard by the IRS. Many companies lose more money and assets from evading taxes than keeping up with regular tax payments.
Hire a knowledgeable tax expert to help you navigate the taxes for your specific business. Whether you are self-employed or own a company of over 50 employees, a tax expert can help you keep up-to-date on your taxes, so you aren’t caught off guard next tax season with penalties and unexpected payments.