Everyone pays taxes, it is simply the way life works, and if you own a business these can seem daunting sometimes. Maybe even complicated.
I have offered to help a few people that wanted to start a business, the thing is they backed off because they did not understand or fully grasp the taxes aspect of owning a business, which intimidated them.
So here, I am going to help break this down some.
Typical Taxes on Business
Generally, the taxes a business owes consist of
· Self-employment taxes
· Income taxes
· Estimated taxes
· Employer taxes
Depending on your type of business, this could also include an excise tax.
If your business has employees, you will also have to withhold taxes from their paychecks and salaries. Those taxes typically consist of
· Medicare
· State withholding (depending on your state)
· Social security
The amount withheld from the employees is then matched by the employer.
Federal and State Taxes
First, each state will have their own tax system. And sometimes your local area too. These taxes can vary greatly by state. For example, in Montana the corporate level is taxed at more than 6%. But in New Jersey this is more than 11%.
Federal taxes that your business will owe depend on factors like your business entity, whether the business has employees, and the amount the business makes.
A sole proprietorship is taxed at an individual level, just like before they started the business. If the sole proprietorship made more than $400, they would need to pay the social security and Medicare taxes. These are the Self-employment taxes.
An LLC that does not elect to file as an S or C Corporation would be taxed the same way as the sole proprietorship. This expense is typically around 15% of the income.
A company that is a C Corporation is essentially double taxed. This is because the company is subject to the usual taxation and the dividends paid to its shareholders are taxed as well. Making this amount around 39%, again this can vary.
When a company elects to run as an S Corporation, typically done by an LLC, the taxes at the federal level consist of the individual tax rate like the LLC or sole proprietorship. Typically, a company chooses to run as an S Corporation because there is not double taxation, and the owner can be paid a salary.
Most companies pay taxes on a quarterly basis. It is typically allowed to do the first year of business not quarterly and instead opt to pay at the end of the year. But you should check locally for information to ensure you are complying with your regulations.
An Excise Tax
The excise tax is typically placed on businesses that produce or sell levied goods such as tobacco products, fuel, highway tractors, tanning beds, and other goods or services. Visiting the IRS website can help you figure out or understand this tax if you think your business may owe this.
Deductions
As with your regular taxes, a business can lower their tax obligation with allowable deductions.
This includes the cost of goods sold, which are the expenses used to run the business, like inventory, subcontractor expenses, and similar things.
Payroll costs if you have employees are also deducted. If you rent office space or use part of your home as your office this can be deducted as well.
Vehicle costs used for business purposes are also deductible however, this does not typically include fuel costs. It is usually mileage based, a farm or ranch is one of the few exceptions to this.
Repairs and maintenance of the vehicle, however, can be a tax write off.
Other deductions include office supplies, utilities, marketing expenses, software, depreciation, etc.
Talking to a certified tax accountant can help immensely to figure out your deductions.
Final Thoughts
Taxes are the way of the world, when running your business, it is a good idea to speak with a tax professional to understand taxes specific to your business.
You can always do research to understand the concept better, and really the more you learn, the better.
To future success,
~TKNott~
Comentarios