1. Types of Business Taxes
Depending on your structure (sole proprietorship, LLC, partnership, S-corp, C-corp), you may encounter some or all of these:
- Income Tax
- Paid on profits (revenue minus expenses).
- Sole proprietors and single-member LLCs report on their personal returns (Schedule C).
- Corporations file separate business tax returns.
- Self-Employment Tax
- Covers Social Security and Medicare contributions for owners of pass-through entities.
- Currently about 15.3% on net earnings (up to the wage base for Social Security).
- Payroll Taxes
- If you have employees, you must withhold and remit income tax, Social Security, and Medicare contributions.
- Employers also pay their share of Social Security, Medicare, and federal/state unemployment taxes.
- Sales Tax
- Required if you sell taxable goods/services in states (or countries) with sales/VAT systems.
- Nexus rules apply (physical presence or significant economic activity in a state).
- Excise Taxes
- Apply to specific industries/products (e.g., fuel, alcohol, tobacco, certain environmental fees).
- Franchise or State Business Taxes
- Some states levy annual franchise taxes or minimum fees just for doing business there, even if you had no profit.
2. Filing and Compliance
- Federal Filings:
- Corporations: Form 1120.
- S-Corps: Form 1120-S.
- Partnerships: Form 1065.
- Sole proprietors: Schedule C with Form 1040.
- Estimated Taxes:
- If your business is profitable, you typically need to pay quarterly estimated taxes (due April, June, September, January).
- State & Local:
- Rules vary widely. Some states have income taxes, gross receipts taxes, or franchise fees.
- Recordkeeping:
- Maintain detailed books on income, expenses, payroll, and assets.
- Retain receipts and tax returns (usually 3–7 years depending on the jurisdiction).
3. Tax Planning Tips
- Deductible Expenses: Office supplies, rent, salaries, health insurance, depreciation, professional services, mileage, etc.
- Entity Choice: LLCs and S-corps can sometimes save on self-employment tax if structured correctly.
- Retirement Accounts: Contributions to SEP IRAs, Solo 401(k)s, or SIMPLE IRAs can lower taxable income.
- Credits: Look into R&D tax credits, energy efficiency credits, or employee-related credits.
- Software/CPA: Using accounting software and/or a professional accountant ensures compliance and can optimize deductions.
4. Risks of Non-Compliance
- Penalties and interest for late filings or underpayment.
- Possible audits (IRS or state).
- Loss of “good standing” status with your state, which can affect contracts and legal protections.