First Steps to Establishing Your New Business: Know Your Business Taxes!

Your company is responsible for various types of business taxes, and if you don’t comply you could be assessed hefty tax penalties and you risk possible litigation with the IRS.

What types of business taxes are there?

There are five general categories of business taxes: (1) Income tax, (2) estimated tax, (3) excise tax, (4), employment taxes and (5) self-employment tax.

  • Income tax is due for all business income – either through the company or, for pass through entities, on the owners’ individual tax returns. Annual income tax returns must be filed by all types of businesses except partnerships, which file information returns (Forms 1065, U.S. Return of Partnership Income). Sole proprietorships file 1040s and report their income and losses on Schedule C. Both “C” and “S” Corporations file Forms 1120, U.S. Corporation Income Tax Return. An LLC with two or more members is treated as a partnership unless its members file Form 8832 and elect to have the entity taxed as a corporation. An LLC with one member is a “disregarded entity” on the member’s personal tax return, also unless they elect to have it taxed as a corporation on Form 8832.
  • Estimated tax is paid at regular intervals throughout the year by those who do not pay (or do not pay the full amount owed) through income tax withholding. If you are not required to make estimated tax payments, you will need to pay all taxes due when you file your annual return.
  • Excise tax is a tax on (1) the manufacture or sale of certain products, such as trucks and other very heavy vehicles; (2) the operation of certain types of businesses, such as lotteries and other waging pools; (3) the use of various kinds of products, facilities and equipment, such as petroleum products and communications services; and (4) the receipt of payment for specified services, such as oil & gas extraction.
  • Employment taxes must be paid if you have employees. These taxes include amounts withheld from your employees’ salaries for federal income tax purposes, federal unemployment (FUTA) tax, social security tax, and Medicare. Employers are required to report all wages, tips and other compensation paid to their employees – tax deposits should be reported on either a monthly and semi-weekly basis. Noncompliance could result in a penalty of up to 15 percent.
  • Self-employment tax covers the social security and Medicare tax obligations of people who earn $400 or more working for themselves. The social security system provides retirement, disability, Medicare, and survivor benefits.

When should I get started with my business tax planning?

Get started right away! Fixing start-up mistakes, later on, can be costly. Hiring the experienced business and tax firm of Moskowitz, LLP to help you with tax planning for your new business could save you a significant amount of time, money, and hassle in the long term. Minimize your federal and state income tax liability by contacting our San Francisco office today.

Leave a Reply

Your email address will not be published.