Taxes can be complicated and confusing, especially if you’re beginning your self-employment journey. Ensuring your taxes are up to date is worth the effort. Not paying taxes on time or accurately is a risk not worth taking. Tax evasion draws consequences that may go as deep as jail time.
Here are some of the top taxes a business owner should never skip:
Income Tax
You must report your net income and any earned profits as income tax. Additionally, you can write off some costs, like travel and supplies for work. You can also offset business losses from gains realized throughout the year.
You should pay taxes on any interest earned through a business investment or property, dividends, and capital gains from investments outside your company. In addition, if an estate or trust is involved with your business (such as when a parent owns the business), that entity will be subject to its income tax rate.
Property Tax on Business Property
Property tax is a levy all property owners must pay the local government. It funds municipal services such as fire protection and road maintenance. Business property is generally subject to two types of property taxes: general business taxes and special assessments.
General business taxes are levied on all businesses in the jurisdiction, regardless of their industry or profitability. Only a select few companies contributing to the cost of regional infrastructure upgrades are subject to special assessments.
Whether you operate a brick-and-mortar store or an online business, your business property may be subject to general business taxes and special assessments. These taxes often revolve around your real estate, equipment, or inventory value. They vary widely depending on the type and location of your property.
Employer Payroll Tax
Employer payroll tax refers to the tax that an employer has to pay on behalf of its employees. It’s also referred to as employment taxes or payroll taxes. Social Security, Medicare, and state and local income taxes are all included in employer payroll taxes. Your gross income and the number of employees determine your required payment for this tax.
If you have employees who receive a salary or hourly wages, you must pay this tax on their behalf. As an employer, you are responsible for paying these taxes by filing quarterly returns with the IRS or state tax office.
To learn more about how the IRS classifies tax payments, you can read Mastering Form 1099-INT: The Essential Guide.
Gross Receipts Tax and State Income Tax on Businesses
A business that sells products or services in a state must pay the state’s sales tax, called the gross receipts tax. The gross receipts tax is based on total sales and calculated as a percentage of the sales price.
State income tax may be due when a business has employees who live in that state or sells goods and services to people who live there. The company may also be required to withhold income taxes from its employees’ paychecks, depending on their states of residence and whether they are considered residents or nonresidents for income tax purposes.
The gross receipts tax and state income taxes are as required by law. If you don’t pay them, you risk being penalized by fines, legal action, or both.
Paying Taxes is Troublesome, but It’s Worth Your Effort
Taxes are a burden, but you cannot avoid them. If you have employees, you can reduce your self-employment taxes or deduct expenses from your business income. You can reduce your self-employment taxes or can’t cost from your business income if you have employees. You’ll be able to save money for your personal use while avoiding IRS fines.ax
