When you run a business, you have to deal with various activities and business matters. One of the most crucial matters is business taxes. Filing for business taxes is important, and it can also be beneficial for your small business or startup.
But taxes are a complex part for small businesses or startups to handle, and it’s different from filing for personal taxes. It requires you to know various types of taxes, tax forms, and other information.
It becomes a more difficult task for you if you are a new business, which is establishing itself.
In this article, we will share all the information that you need to know so you can get started with your business taxes.
It is better to be prepared in a tax matter because it’s the best way of making the taxation process easy.
So let us dive deeper into the topic.
Different Types of Taxes
Income Tax
Income tax is what you pay on the income that your business earns. It is a tax on the payments your business receives from any source of income or sales of goods or services.
Self-employment tax
Self-employment tax is what you have to pay as a self-employed owner of a business to cover your medicare taxes and social security.
Excise Tax
Excise tax is for the businesses that are involved in specific goods or services like heavy trucks or tractors, fuel, or transportation.
Employment Tax
This tax is also known as payroll tax. The employment Tax is what you deduct from employees’ paychecks. The deductions are for federal income taxes, medicare taxes, federal unemployment taxes, and federal income taxes.
Sales Tax
Sales tax applies to your business if you sell goods and services. You have to calculate, collect and report sales tax, and it applies to the final sale of a product or service in the US. Moreover, there is no federal sales tax, but 45 states have a sales tax requirement.
Property Tax
You pay property tax if your business owns any land, commercial property, or real estate. It regulates on a local level based on the location of your business.
Types of Forms required to file for Startup and Small Business Taxes
Following are various forms based on the structure of your business
- Form 1120- C-Corporations requires this form.
- Form 1120S- S-Corporations requires this form.
- 1099-MISC- It is a tax form for Sole Proprietors.
- Form 1065- This tax form is for standard partnerships and multi-member LLCs.
- Form 8832- This is a tax election form for an eligible entity to choose how it will be filed for federal tax purposes, a partnership firm, a corporation, or an entity not regarded as separate from its owner.
- Schedule C- It is a tax Form for Sole proprietors.
- Form 990/Form 990-PF- It is a tax form for nonprofit organizations (NGOs) that file as public charities or private foundations.
The time to file for your small business taxes
As a small business, you are required to pay taxes to International Revenue Service (IRS) four times a year. It means that you have to keep a track of four deadlines in a year to file for tax.
Moreover, whatever your business type is, you are liable to pay taxes if you owe income tax of $1,000 or more and the corporations are liable to pay quarterly taxes if they owe $500 or more taxes in their small business taxes.
Taxes based on Your Business Structure
Sole-Proprietorship Taxation
If a business has a single owner, and it is managed and operated by an individual, then it is called Sole Proprietorship. As there is a single owner of the business, filing for taxes is relatively simple in this structure.
In a sole proprietorship, you can report your business losses and income on your income tax.
It does not require you to file your business taxes on behalf of your business. So, your business profits are taxed at your income tax rate. Moreover, you are liable to pay self-employment taxes.
Partnerships Taxation
A Partnership is a business run by two or more owners. Most partnerships are called general partnerships, but there are other types as well, like limited partnerships and limited liability partnerships (LLPs). The business partners/owners that are part of the business must pay income taxes, self-employment taxes, and quarterly taxes.
Partnership businesses have to file Form 1065, which shows the income, gains, deductions, and losses from their operations. Moreover, the partnership businesses enjoy “pass-through taxation,” where the income is taxed on the business owners instead of being subject to corporate tax rates.
C-corporation Taxation
C-corporation is a business structure where the business is legally separate from its owners, and such businesses are subject to “double taxation.” The income tax form for C-corporations is Form 1120.
The C-corporations income tax rate is 21%, and the business shareholders are taxed on their personal tax returns after the profits are distributed among them as dividends. Moreover, the dividends of C-corporations are subject to dividend specific tax rate.
S-corporation Taxation
S-corporation is a business structure that elects itself to be treated as a pass-through entity for tax purposes. Similar to partnerships and sole proprietorships in S-corporations, the profits are taxed at the personal income tax rate. Each shareholder in this business structure reports business income and losses on their personal tax returns.
The form that S-corporations prepares is Form 1120S. The S-corporations divide their business income between salary and dividends like C-corporations. Similar to C-corporation, in S- corporation, the employee salary is subject to self-employment taxes.
Limited Liability Company
A business entity that keeps the owners legally separate from its debts or liabilities is a limited liability company (LLC).
The LLC owner has the liability to protect the corporation with the tax benefit of a partnership or sole proprietorship. LLCs are subject to Form 1065 for informational purposes each year.
An LLC is also subject to pass-through taxation, which is similar to partnerships. It means LLCs are not taxed twice like corporations and are subject to make quarterly payments on personal income tax forms.
Conclusion
It’s a wrap with startup and small business taxes. This article will help you in understanding the various taxes, different tax forms, and types of business structures, and taxation.
Taxes are crucial for your business, and as a business, you should understand all the nitty-gritty of business taxes.
Want advice, consultation, or support in your small business or startup tax matters?
VcourTs can assist you with an online mediation service so that you file for your taxes on time and reap benefits out of it.
