Business taxation basically refers to the taxes that businesses should pay as part of their operations. Whether you’re part of a limited liability company, a sole proprietorship, a corporation, or a partnership, your business has the responsibility to adhere to tax regulations.
So, make sure that you consider the tax considerations of your business so that you’ll know which kind of entity can help your business grow and prosper. Fortunately, preparing for taxation day doesn’t have to be complicated. With the help of accountants or any accounting firm like Page Kirk LLP, you can be assured that you’ll be able to pay your business taxes on time.
Below are the other things you should know about business taxation:
Business Owners Have To Pay Quarterly Taxes
Business owners need to pay quarterly taxes when their state tax returns or federal returns are filed. You can determine your estimated tax payments using Form 1040-ES. It’s also helpful to use your previous year’s deductions, tax credits, and income as a starting point. You may also use your last year’s federal tax returns as your guide.
Once you’ve determined your e-file and number, you can pay your business taxes in various ways. These include the Direct Pay of IRS, which takes the money owed out of your savings or checking account. You can also pay by phone.
Unless their companies lose money, sole-proprietor and self-employed business owners always have to pay the estimated quarterly taxes. Freelancers, business owners, and sole proprietors assume full tax burden, unlike salaried employees. Business owners who won’t be able to submit the majority of their taxes will have penalties, so working with tax accountants can be helpful to check if the amount owed is right.
There Are Different Types Of Business Taxes
When it comes to business taxation, there are major types of business taxes you should be aware of, and these include:
- Excise tax
- Gross-receipts tax
- Employment withholding tax
- Corporate franchise tax
- Value-added tax (VAT)
In other industries, such as insurance and mining, companies will have to pay additional taxes. While some businesses pay property tax, sales tax, and income tax, such taxes aren’t specific to business and aren’t generally considered business taxes.
You Can Use Tax Deductions To Lessen Your Tax Bill
New business owners often need to stretch their financial resources. This is especially true for small businesses with expenses that include wages, travel, vehicle expenses, supplies, contract labor, insurance, rent on utilities, equipment, repairs, and depreciation of assets.
Luckily, business owners can reduce their business taxes by writing off such operational expenses when tax season comes.
Tax Requirements May Vary From One Business To Another
While all business structures share several similarities, the tax requirements may vary. These are the different types of businesses and their different tax requirements:
- Sole Proprietorship – With a sole proprietorship, your personal assets aren’t different from your business assets. Since your professional and personal assets are lumped together, you should report the income of your business and losses on your income tax return.
Such losses and profits will be taxed like your personal income tax rate. Sole proprietors should also pay self-employment taxes that account for social security and Medicare.
- Partnership - For partnerships, they should pay self-employment taxes, quarterly estimated taxes, and income taxes. There is also the need to file Form 1065, which is where you can list the losses, gains, deductions, and income.
Same with sole proprietorship, the business won’t pay taxes because the owners are.
- Corporations – There are two kinds of corporations with special tax requirements and these include S corporations and C corporations. Legally, C corporations are a separate entity from business owners. Owners are also subject to double taxation. For C corporations, the income tax form is Form 1120.
On the contrary, S corporations have a less formal document to file and it’s known as Form 1120s. Since S corporations are considered pass-through entities, they don’t have to deal with double taxation of some corporations.
- Limited Liability Companies (LLC) - This kind of business structure is meant to keep the liabilities and assets of businesses separate from their owners. If you’re running an LLC, you’re protected from taking on your business debts and you’re considered as a pass-through entity, which means you’ll avoid double taxation.
The owners of this business structure will have to make quarterly tax payments on personal income tax forms. You’ll also need to file Form 1065 each year.
Be Prepared For Tax Day
One of the best ways to handle a tax day is to be prepared for it. Otherwise, you might face some problems with your taxes and get penalties.
To be prepared, save records of your sales transactions, checking account, and unclassified income. You should also keep anything that proves you received or spent money. It will help make your expensed statements and income more accurate. If you don’t want to deal with a filing cabinet that’s full of invoices or receipts, use accounting software to keep track of all things you’ll need for your tax day.
There Are Other Business Taxes You Should Pay
Keeping track of the taxes you’re responsible for may come as a great surprise if you own a business. As a business owner, there are other business taxes you have to pay, and these are as follows:
- Payroll Tax – If you have several employees, you’ll have to pay payroll taxes on their salary. Payroll taxes often include federal income tax withholding, Medicare and Social Security taxes, and state and federal unemployment taxes.
Most business owners hire a payroll service provider to handle their payroll liabilities and file their tax forms on their behalf.
- Self-Employment Tax – If you haven’t owned a business in the past, you’re likely unaccustomed to paying self-employment taxes. As a self-employed individual, you’ll have to pay 15.3% of self-employment tax.
However, you can reduce half of this on your personal tax return. Also, it’s a good idea to take advantage of the operating and startup business expenses to lessen tax deductions.
Operating and setting up a business comes with significant costs. Whether you’re working with partners or you’re flying solo, business taxation is something that you should prioritize to avoid severe penalties in the long run. If you want to avoid the common pitfalls of filing taxes, don’t hesitate to work with tax professionals and save yourself from possible penalties.