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Small Business Taxes
Business taxes there is a lot involved, and the more you know, the better you’ll be prepared when Tax Day comes. Understanding the ins and outs of small business taxes will help you every year as you continue to run your small business. There is a lot that you already know about running a business, so why not know about the taxes involved as well.
What Is a Payroll Tax?
A payroll tax is a percentage withheld from an employee’s pay by an employer who pays it to the government on the employee’s behalf. The tax is based on wages, salaries, and tips paid to employees. Federal payroll taxes are deducted directly from the employee’s earnings and paid to the Internal Revenue Service (IRS).
If you’re running a small business with employees, then you have to deal with payroll taxes. Payroll taxes encompass income tax and social security and Medicaid contributions. It is your responsibility as the employer to take care of these withholdings for your employees.
Taxes like this should be paid regularly, and you should report on your tax payments quarterly. By staying on top of payroll taxes, you can avoid legal trouble and be sure that your business is operating legally and appropriately.
Key Payroll Taxes Takeaways
- Payroll taxes are withheld from every employee’s salary and remitted to the federal government.
- In the U.S., payroll taxes are used to fund Social Security and Medicare.
- Payroll taxes are used for specific programs. Income taxes go into the government’s general fund.
As a small business owner, you need to pay taxes on the income your business makes. If you want to keep your taxes low, you need to pay attention to the business structure you choose. Knowing how to structure your company will ensure that you don’t spend more on taxes than you should.
It is also important that you make appropriate deductions so that you can save money on your taxes. Business-related expenses can generally be deducted from your income taxes. Knowing what deductions qualify can help you to save on your business income tax each year.
What Is a Sales Tax?
A sales tax is a point-of-purchase levy that is paid by consumers who buy the taxed goods and services within the borders of the taxing authority. In the U.S., the authority is a state and sometimes a county or city. The tax is added to the price of the item or service and is included in the total cost for the buyer.
While your business is likely not responsible for paying sales tax itself, if you are in a state with sales tax, you are responsible to collect tax from your customers and pay that to the government. If you don’t collect taxes and you are required to by law, your business can get into trouble.
Make sure to be familiar with any sales tax laws in your state so that you can meet the legal requirements and collect taxes as is necessary. There are a couple of different ways that sales tax can be required, so it’s important to know how your state works.
Key Sales Taxes Takeaways
The federal Internal Revenue Service has little to do with sales taxes, though its guidance for nonprofits is used to determine some exemptions. Sales taxes are governed by states, and, to a lesser degree county and municipal bodies that also have sales taxes.
Understanding the ways your business will be taxed can help you to plan correctly for your business. No matter where your company is based, there are sure to be some taxes for you to pay, so be sure you follow the rules and get your taxes taken care of.
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