3 Types of Taxes You Need to Account for as a Small Business Owner
The longer a business stays open, the greater the chance it will survive. The latest statistics show a third of new businesses fail within two years. Things are more difficult for small businesses. Many small businesses try to stay afloat by cutting corners. The owners may try to handle their own accounting and tax returns. This is difficult for those who don’t have the proper training.
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Failing to pay taxes can kill a business. Indeed, the IRS places a lien on a company’s bank account when they don’t make payroll tax payments. Likewise, a business can be closed for not paying sales tax. That’s why experts recommend hiring a company to handle Business Tax Services. The government scrutinizes the payment of payroll taxes. Owners face harsh fines and penalties for abuses. That’s because payroll taxes are taken out of the employees’ money. Payroll taxes include federal income tax, state and local tax, and medicare and social security taxes.
The employer withholds income taxes on employee wages after deductions are subtracted. Withholdings are based on marital status, tax bracket and the number of dependents. Medicare and social security taxes are known as FICA. 6.2 percent of the employee’s salary is withheld for social security. That amount is matched by the owner. Likewise, each party pays 1.45 percent for medicare. Business owners must file the IRS form 941 quarterly. This form reports withholdings that were taken. The withholdings must be paid to the IRS by a certain time each month. It’s a lot easier having a company do this work. Employers are also legally obligated to pay unemployment taxes. This money has to be available when unemployment claims are made.
The business owner pays income taxes to the federal and state governments. Indeed, the business’ status can help when it’s tax time. Sole proprietors are the only owner of a business. Hence, they can pay business and personal taxes on one return. A schedule C must accompany the tax return to show the business profits and losses.
Corporations have the most complicated tax system. A corporation must pay income tax twice. The corporation and its owners file separate tax returns. This means owners report after-profit dividends on their tax returns. They’re taxed for the same money as the corporation. LLC owners only have to file one tax return. Sole proprietors pay 100 percent of their FICA taxes. This is known as self-employment tax. This tax makes sure the business owner can get retirement, disability, medicare and survivor benefits.
Small businesses that sell goods and services must pay sales tax. The owner must apply to collect sales tax before the business opens. Sales tax is kept in a separate bank account and turned over to the Department of Revenue with an accounting. Sales tax must be paid at regular intervals depending on what state one lives in. This is another job for a good accounting service.
Small businesses face a lot of liability if they don’t pay taxes. Sometimes, it’s difficult to keep up with varying tax schedules and do regular work. That’s why it pays off, in the end, to have someone do it for you. This is one area where the company shouldn’t try to save money.
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