Small business owners: 4 types of taxes you should know
Ease the stress of taxes with the following info.
Owning a small business is more than just a job, it is a way of life. Like any part of our lives, it can come with ups and downs. For many entrepreneurs and small business owners, the coming tax season marks one of the biggest valleys that comes with business ownership.
Although the exact taxes that apply to your business endeavor will vary depending on the details of your enterprise, every business owner should have a basic understanding of these four taxes:
#1: Income taxes.
The Internal Revenue Service (IRS) expects all businesses, except for partnerships, to file income tax returns. The exact forms vary depending on the business entity. Corporations are generally required to file a Form 1120, U.S. Corporation Income Tax Return while an S Corporation generally needs to file a Form 1120-S, U.S. Income Tax Return for an S Corporation.
A failure to file taxes can lead to serious consequences. If the agency can establish the failure was intentional, they could pursue criminal charges.
#2: Estimated taxes.
The United States tax system is a pay as you go system. As a result, the government expects everyone to pay taxes regularly, throughout the year. This includes businesses. Individuals may see tax deductions on their paychecks every month, but business owners need to proactively gather these payments and send them to the IRS on a quarterly basis.
A failure to do so can result in financial penalties.
#3: Self-employment and employment taxes.
Self-employment taxes essentially allow for the gathering of funds to provide for the self-employed individual’s Medicare and social security benefits. Small business owners with employees may also need to pay employment taxes like social security and Medicare as well as federal unemployment taxes on behalf of their workers.
#4: Excise taxes.
Certain businesses are required to pay excise taxes. Excise taxes are a fairly broad category, defined by the IRS as taxes on businesses engaged in the manufacture or sale of certain products, the operation of certain kinds of businesses, the use of equipment, facilities or products or for businesses that receive payment for certain services. This vague definition could potentially apply to any business operation in the country.
A little bit of guidance can help business owners get a better grasp on this broad category of tax obligations. In many cases, any business that operates in a market selling tobacco, gasoline or alcohol products will likely need to pay an excise tax.
Unsure about your business’ tax obligations or getting notification of an impending audit? It may be a good idea to seek legal counsel to figure out what is going on and better ensure your operations comply with applicable tax law.