How you plan to implement your legal business strategy will determine the types of business taxes you will be responsible for. For instance, there are different tax requirements for sole proprietorship, general partnerships, limited liability companies and corporations. Familiarize yourself with the general types of business taxes to better prepare yourself for the world of business:
- Income Tax: As indicated by its title, income tax is based off of a company’s actual income throughout the tax year. The only business type exception is a partnership, which files an information return instead of an income return. Businesses are required to pay throughout the year as income flows in and, if the income tax isn’t paid through withholding or enough isn’t paid, business often pay an estimated tax.
- Estimated Tax: Income that isn’t subject to withholding is subject to estimated tax, such as dividends, interest, alimony, rent, self-employment, and other sources of income. Another reason for paying estimated tax is in the event that the amount of income tax withheld from your salary or other income isn’t sufficient enough to the amount. Most types of businesses that estimate their taxes owed to exceed $1,000 will have to pay estimated tax.
- Employment Tax: As a business owner with employees, you are responsible for paying a few types of employment tax and filing the corresponding forms. The types of employment tax include Medicare, federal income, federal unemployment, and social security.
- Self-Employment Tax: If you work for yourself and you make over $400 in net earnings, you are required to pay self-employment tax and file Form 1040. The tax consists of Medicare and social security, which includes disability, survival, retirement, and hospital insurance benefits. Of course, there are exceptions to the self-employment tax rules if you are a church-controlled organization worker, fishing crew member, alien, government employee, international employee, and so on.
- Excise Tax: There are several different forms you may have to complete if your company gets paid for certain services, operates in a certain way, makes or sells certain products, or uses certain equipment, products or places. Here are the different forms with brief explanations:
- Form 11-C: Occupational Tax and Registration Return for Wagering
- Form 2290: Heavy Highway Vehicle Use Tax Return (vehicles that have a taxable gross rate of 55,000 pounds or more)
- Form 720: Quarterly Federal Excise Tax Return (fuel, environment, retail of heavy vehicles, air transportation and communication, and other taxes)
- Form 730: Monthly Tax Return for Wagers (accepting wagers or managing a lottery or wagering pool)
When building a business, organizing your taxes is absolutely crucial. Committing errors in your taxes can result in severe penalties, or even threaten your business’ future. An experienced tax lawyer is a necessary expense in the beginning of your company, as well as a sound investment in the company’s financial safety.