The current tax rate for corporate income is 21% in the US, but a business may pay a different amount depending on a range of factors.
If you run a business, you’ll have a lot of responsibilities. One of these is filing taxes, and taxes must always be filed properly. Don’t rush things, and ensure that you have everything in order to avoid any issues.
In this guide, we’ll cover the different types of taxes that a business may need to pay. Keep reading for more.
Income Taxes for Small Businesses
Income tax is one of the most basic taxes, and it’s something that all businesses must pay – though how it’s paid varies depending on the business.
Taxes for small businesses typically work on a pass-through basis. This means any losses or gains are factored into the personal income tax returns of the owner.
Partners and multiple-member LLC owners need to file a partnership business tax return. Each member/partner will pay taxes on the income they make from the business. Owners of LLCs are taxed as partnerships or sole proprietors, and that some LLCs may choose to be taxed as a corporation.
S Corporations are similar, as the overall income is divided between the owners. They each receive a Schedule K-1 for their individual income tax return.
Income Taxes for Corporations
When corporations file taxes, it’s done separately to the owners using IRS Form 1120. The net income may be distributed to shareholders – typically as dividends. If this is the case, the net income of the corporation needs to be taxed.
Owners of LLCs, partners in a partnership, and sole proprietors pay self-employment taxes. It covers Medicare and Social Security, and the amount will depend on the net income of the business.
You need to add your self-employment taxes to your personal tax returns. You can calculate your self-employment tax using Schedule SE. Some small businesses might not make a net income over a year – in this case, you won’t need to pay any self-employment tax – though you won’t get Medicare or Social Security credits for any years you don’t pay.
As a business owner, you don’t have income tax or self-employment taxes coming out of a monthly paycheck. You instead need to pay these to the IRS throughout the year.
You need to estimate these quarterly and pay them on the 15th of April, June, September, and January. Estimated tax is a combination of business and personal income taxes.
Sales Tax on Products and Services
This varies depending on the state, so you need to set up a system for your own business. You need to collect it from customers, then report and pay it to the state your business is in. In most states, this goes to the state’s Department of Revenue.
Depending on the laws in specific states, certain products and services are eligible for sales tax. This is the case for both physical selling as well as online selling. As such, you might need to charge sellers from other states depending on the laws in your state.
Property Tax on Business Property
This is a local tax, and it only applies to business property. The amount is determined by the value of the property, and there may be special considerations when selling business property such as a building. This can be quite complicated, so you should always get assistance from a tax professional if you’re planning on selling business property.
Excise Taxes on Use and Consumption Of
These apply to the consumption or use of things like fuel, communication, and transportation. You need to pay these via Form 720 either annually or quarterly depending on your usage. All states also levy excise taxes on certain products/services such as tobacco, gasoline, and gambling activities.
Employment Taxes Paid on Employee Earnings
As an employer, you need to withhold FICA taxes and federal income taxes from your employees. Your business also needs to contribute an equal amount in FICA taxes. You must report this each quarter and pay them regularly.
How often you need to pay these will depend on the federal income tax withheld, the FICA taxes from the employee and the business, and FUTA (Federal unemployment) taxes, again paid by the business.
Gross Receipts Tax and State Income Tax
This is a tax that some states use in addition to, or instead of, a state income tax. Most states have a standard state income tax, so you might not need to pay this. Check the laws in the state your business is based in to be sure.
Dividend Tax on Corporate Shareholders
Shareholders need to pay taxes on any dividends they receive. This will vary as every corporation makes its own decisions about the size and frequency of dividend payments.
The tax rate goes through your personal tax return, but they’re not considered earned income. You’ll get a 1099-DIV form that has the dividend amount for that year. Make sure you include all necessary information such as the type of dividend and how long it was held.
Dealing With the Different Types of Taxes
Paying taxes can quickly become a complicated matter in any situation. You may need to pay different types of taxes depending on the nature of your business, and hiring a professional business bookkeeping service can help.
Stander & Company can assist in a range of ways as we provide tax, insurance, and bookkeeping services, as well as several others. Take a look at our tax services page today to see how we can make things easier for your business.