Full Overview of Us Business Taxes
All the important taxes your business needs to pay!
Just like all individuals, all businesses are legally obliged to pay multiple tax types – with some being simpler to understand and wrap your head around than others. Business taxes typically come in a few varieties, including local, state, and federal.
Dependent on your specific business activities, there are multiple other types of taxes too. These activities include selling taxable services or products, owning business property, using particular equipment, having employees vs. being self-employed, and the overall profit you make.
So, whether your business has recently changed if, for example, you’ve begun hiring employees or have recently bought property for your business, or if you’re simply just starting out, it’s essential you know precisely which taxes you’re required to pay for your specific activities.
Income Tax
Regardless of your business type or size, you must pay tax on your income. That is, your business is legally required to pay tax on the company’s overall profit – the total income of the business minus deductible expenses. However, how this tax is actually paid will depend on the form of your business.
Partners in partnerships, S-corporation owners and small business (single-member LLCs and sole proprietors) will pay this tax via their personal income tax returns. This general concept is identical for all these types of businesses, but the actual filing process varies.
Single member LLC members and sole proprietors will pay their income taxes by filing a Schedule C within their personal return. However, multiple-member LLC members and partners in partnerships must file a specific business return that pays on their share of the business income – including this income in their personal tax returns.
Sales Tax on Services & Products
With regard to services and products sold, businesses don’t directly pay sales tax. But, if your business is operating in a state that requires state income tax, it’s vital for you to establish a system to collect, report, and subsequently pay your required state sales tax.
In most states, sellers must collect their sales tax and pay it to their state department of revenue. This money has to be collected and paid in full every time, and reports must be accurately completed regularly to ensure maximum efficiency. It’s also important to remember that only specific services and products are sales-taxable.
Sales taxes may also be required for items sold online, and many states now require specific types of sellers. An example of this would be an affiliate.
Business Property Tax
This form of tax is solely based on the assessed value of the property in question. This is the same concept for personal property, such as a house.
However, when paying property taxes when a piece of business property is sold, special considerations must be met. As this typically depends on individual circumstances, it’s important to speak with a property tax expert to ensure you’re in-the-know.
Self-employment Tax
Paid by sole proprietors and partners for Social Security and Medicare, self-employment taxes are based on the overall income of the business.
But, because business owners aren’t classed as employees, there isn’t a pay to withhold these taxes from – self-employment tax is the only alternative.
LLC owners are also obliged to pay self-employment tax, whilst owners of corporations who still work as employees don’t have to pay self-employment tax.
Excise Taxes on Use and Consumption
Excise taxes are defined as business taxes paid for specific types of consumption or use. These may include communication or transportation activities, and using fuel.
Paid to the IRS either annually or quarterly, excise taxes strongly depend on usage amount and are paid using a 720 form.
Gross Receipts Tax
The majority of US states have a specified state income tax for all businesses. However, certain states impose a tax known as gross receipts tax upon businesses – instead of a standard state income tax.
Examples of states currently enforcing this are Nevada and Texas. However, some states will allow certain deductions for this tax, and others allow total exemption for some business types. For example, sole proprietorships are typically exempt from paying gross receipts tax, but not from overall state income tax.
Usually, LLCs and corporations are liable to pay gross receipts taxes. This will be determined by the fiduciary laws of their location state.
Franchise taxes
Similar to the above gross receipts tax, some states charge franchise taxes to corporations based solely on the value of the company itself. Typically, sole proprietors aren’t subjected to paying franchise tax.
Payroll or Employment Tax on Employee Earnings
Employment taxes are taxes paid by a business owner based on the gross pay of all employees. Multiple types of taxes are included in this category, including federal and state unemployment, FICA taxes (for Social Security and Medicare), and federal and state workers’ compensation taxes.
In the same way as sales taxes, employment taxes must be collected, reported and paid. In this case, employment taxes will be paid to the Social Security Administration and the IRS.
However, some types of this tax (like unemployment tax) aren’t directly collected from the employees themselves. Instead, they must be paid by the designated employer.
Need Advice on Taxation, Company Formation, and Residency in the United States?
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