All the Taxes Your Business Must Pay

Just like an individual, businesses must pay several different kinds of taxes,
some easier to understand than others. Taxes for businesses come in several
varieties: federal, state, and local.

There are also different types of taxes depending on various business activities,
like selling taxable products or services, using equipment, owning business
property, being self-employed versus having employees, and of course, making a
profit.

If you are just starting your business, you need to know what taxes you'll be
expected to pay. If your business has changed—if you have bought property or
started hiring employees, for example—you'll need to know about the taxes
associated with these activities.

 01

Income Taxes

All businesses must pay tax on their income; that is, the business must pay tax
on the profit of the company (the income of the business less deductible
expenses). How that tax is paid depends on the form of the business.

Small businesses (sole proprietors and single-member LLCs), partners in

partnerships, and S-corporation owners pay taxes through their personal income
tax returns. The concept - called pass-through tax - is the same for all of these
business types.

Sole proprietors and single-member LLC members pay taxes by filing a Schedule
Cincluded with their personal return

Partners in partnerships and multiple-member LLC owners file a partnership

business tax return for information purposes only. The individual partners or LLC
members pay income taxes their share of the income of the business, by
including this income in their personal returns.

 02

Sales Tax on Products and Services Sold in Certain States

Businesses don't directly pay sales tax on products and services they sell. But if
your business operates in a state that has state income tax, you must set up a
system to collect, report, and pay state sales tax.

Merchants in most states are required to collect sales tax and pay it to the state
department of revenue. Specific products and services are sales-tax eligible,
depending on state laws. Money must be collected from customers, reported,
and paid on a regular basis.

Don't forget sales taxes for items you sell online, which many states now are
requiring for specific types of sellers.

 03

Property Tax on Business Property

If your business owns real property (real estate), like a building, your business
must pay property tax to the local taxing authority, which is usually the city or
county where the property is located.

The tax is based on assessed value, same as for personal property like a house.
There are special considerations for paying property taxes when you sell a piece
of business property (capital gains taxes may have to be paid, and you should
consult with a tax professional for such matters.

 04

Excise Taxes on Use and Consumption

Excise taxes are paid by a business for certain types of use or consumption, like
fuels, and other activities like transportation and communication.

Excise taxes are paid to the IRS, either quarterly or annually, depending upon
usage, using Form 720.

 05

Self-Employment Tax on Owner's Share of Business Income

Self-employment taxes are those paid by sole proprietors and partners for Social
Security and Medicare, based on the income of the business.

Because business owners are not employees, there is no pay to withhold these
taxes from, so self-employment tax is the alternative.

LLC owners also must also pay self-employment tax. Owners of corporations
who work as employees do not have to pay self-employment tax.

 06

Estimated Taxes for Business Owners

Because you are the owner of a business, no one withholds income tax and self-
employment tax from the money you take out of the business. (You don't get a
paycheck, remember, because you aren't an employee.)

The IRS requires that these tax be paid throughout the year, so you must
pay estimated taxes quarterly. The first payment of the year is due April 15, then
again on July 15, September 15, and January 15 of the following year.

The estimated tax form for business owners combines business and personal
income and taxes, including self-employment taxes.

 07

Employment or Payroll Taxes Paid on Employee Earnings

Like sales taxes, some employment taxes are collected, reported, and paid. In
this case, the taxes are paid to the IRS and the Social Security Administration.

Employment taxes are those paid by the owner of a business for several types of
taxes based on the gross pay of employees. These include FICA taxes (for
Social Security and Medicare), federal and state unemployment, and federal and
state workers compensation taxes.

Some of these taxes (unemployment tax, for example) aren't collected from
employees, and they must be paid completely by the employer.

 08

Gross Receipts Tax on Businesses in Some States

Most states have a state income tax for businesses. But some states, like
Nevada and Texas, impose a gross receipts tax on businesses instead of a state
income tax. In these states, gross receipts (revenues) of the business are taxed.
Some states allow deductions for this tax, and some types of businesses are
exempt in some states.

Sole proprietorships are usually exempt from paying gross receipts taxes, but not
from state income tax.

Corporations and LLCs are most likely to pay gross receipts taxes, determined
by the fiducairy laws of the state in which they are located.

 09

Franchise Taxes: Similar to Gross Receipts Tax

Some states charge franchise taxes to corporations based on the value of the
company. These taxes are similar to a state income tax or a gross receipts tax.
Sole proprietorships are not typically subjected to a franchise tax.

10
Dividend Tax on Corporate Shareholders

If you are an owner of a corporation, you are a shareholder. That means you pay
income taxes on income you receive from dividends.