Tax can be a big headache for a starting business owner, especially for those new to the entrepreneurship world. When it comes to understanding your new tax responsibilities, it’s important to remember that there are three different types of taxes: income, payroll, and sales. All three are different from each other and have different reporting deadlines. Read this article to learn more about them!
Overview Of Taxes
As a business owner, it is important to have a general understanding of the various types of taxes you may be responsible for. This includes income taxes, self-employment taxes, payroll taxes, and excise taxes.
Income Taxes: All businesses are required to pay federal income taxes on their profits. The amount of tax you owe will depend on the type of business you have and your marginal tax rate.
Self-Employment Taxes: If you are self-employed, you are also responsible for paying self-employment taxes. These taxes fund Social Security and Medicare benefits. The amount of tax you owe is based on your net income from self-employment.
Payroll Taxes: If you have employees, you will also be responsible for paying payroll taxes. These taxes include Social Security, Medicare, and federal unemployment insurance. The amount of tax you owe will depend on how many employees you have and how much they earn.
Excise Taxes: Excise taxes are imposed on certain products and services, such as alcohol, tobacco, and gasoline. The amount of tax you owe will depend on the type and quantity of product or service sold.
1. What You Should Know About Payroll Taxes
As a business owner, you are responsible for withholding, paying, and reporting payroll taxes.
Withholding: You are required to withhold federal income tax, Social Security tax, and Medicare tax from your employee’s paychecks.
Paying: You are responsible for paying the withheld taxes to the government, as well as your share of the Social Security and Medicare taxes.
Reporting: You must provide your employees with a W-2 form at the end of each year, detailing their earnings and the taxes withheld. You must also file a quarterly report (Form 941) with the IRS detailing your payroll taxes.
2. The Difference Between Self-Employed And Incorporated Business Owners
There are a few key differences between self-employed and incorporated business owners when it comes to taxes.
Firstly, as a self-employed individual, you are considered to be both the employer and employee of your business, which means you will need to pay both income tax and Social Security/Medicare taxes.
Secondly, you will likely need to file quarterly estimated tax payments in order to avoid underpayment penalties.
On the other hand, if you incorporate your business, you will become a separate legal entity from your business itself. This means that you will only be responsible for paying income tax on your personal salary and not on the profits of the business itself. Finally, incorporated business owners may be eligible for certain tax breaks and deductions that self-employed individuals are not.
3. How To Find Tax Resources
There are a lot of tax resources available for business owners, and it can be overwhelming to try to figure out where to start. The best place to start is with your local Chamber of Commerce or Small Business Administration (SBA) office. They can provide you with information on federal, state, and local taxes that may apply to your business.
Another great resource is the IRS website. They have a section dedicated to small businesses and self-employed individuals. This section includes information on starting a business, filing taxes, and understanding tax obligations.
Your accountant or tax preparer is also a great resource for questions about taxes. They can help you understand which tax forms you need to file and how to file them correctly.
Conclusion
As a business owner, it’s important to be well-informed about taxes. They can be complex and confusing, but understanding them is crucial to keeping your business running smoothly. We hope this article has given you a better understanding of the three things you should know as a starting business owner about taxes. If you have any further questions, be sure to consult with a professional tax advisor.
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