The Four Types of Business Taxes
- October 2nd, 2014
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There are several types of taxes that businesses are responsible for paying. As a business owner, it’s important to be aware of the many obligations to which you’re bound so that you make sure you fulfill them all. If you wind up failing to pay any the business taxes for which you’re responsible, you’ll fall victim to costly penalties when you do get around to paying them. As the saying goes, “the only things in life that are certain are death and taxes,” so if you accidentally miss a tax payment, you can be sure to be held accountable for it eventually.
Types of Business Taxes
Income Taxes: All businesses are responsible for paying federal income taxes, and in most states, must pay state income taxes as well. The means by which the business pays income taxes varies based on the way the company is structured. For example, C Corporations are considered independent entities, and as such they pay income taxes on behalf of the company, whereas S Corporations, Partnerships, LLCs, and Sole Proprietorships require the owner to pay taxes on his or her share of the business income.
Employment Taxes: Any company that has employees will owe several types of employment taxes. For starters, employers are required to withhold income taxes and their employees’ shares of Social Security and Medicare (FICA) taxes. In addition, employers must also pay their portion of FICA per employee, as well as state and federal unemployment taxes. The owners of businesses that are incorporated as considered employees of the company, even if they’re the only ones, so the company owes those taxes on behalf of the owner as an employee. Likewise, if you’re self-employed, you have to pay self-employment taxes, which are equal to the employee and employer shares of FICA, on your net earnings from your business.
Sales Taxes: If your company sells goods or services and you’re located in a state that imposes a sales tax, you are probably required to collect sales taxes on your sales transactions. The money that you collect during those transactions must subsequently be paid to the state, and if you fail to either collect the taxes in the first place, or pay them to the state once they’re collected, you’ll wind up incurring tax penalties.
Excise Taxes: These taxes are only applicable to certain types of businesses. Excise taxes are due when specific goods are purchased, such as gasoline, or for certain activities, such as highway usage by trucks. If your company partakes in these types of activities, or makes purchases with applicable excise taxes, you’ll be responsible for reporting those taxes, which are rolled into the cost of the product/service when you purchase it.
If you have further questions about the types of taxes your business may owe, call the tax professionals at JRH & Associates at (516) 794-5752 today!