Taxes and Businesses

Taxes and businesses go together. It's an inescapable fact. If you are going to be an entrepreneur, you will need to learn about the different types of taxes you be responsible for paying.

Businesses are subject to several types of taxes.

As a business owner, you are responsible for paying taxes on your earnings. You are also responsible for collecting and remitting certain taxes, whether your business is currently making money or not.

If you have employees you are paying by the hour or on a salaried basis, you will need to pay employment taxes on their behalf. You are responsible for holding back a portion of each employee's earnings and remitting it on that person's behalf. State taxes will also need to be paid for workers.

It may make sense for you to hire a payroll service to look after this important part of your business, because if you do not deduct the correct amount in employee taxes (and the employee should have paid more), then you will be responsible for paying interest on the amount that should have been deducted, as well as penalties.

As an employer, you will also need to set aside a portion of your payroll budget to pay your share of the following for your employees:

• Medicare
• Social Security
• Unemployment Insurance

A good guideline for this portion of your payroll expense is to plan for an additional 13 percent over your gross payroll to cover these expenses.

Another type of taxes businesses need to be aware of is sales taxes. Most states require you to collect a tax on sales made to customers for almost any type of product. Some states collect sales tax on services provided as well.

If you are selling to either wholesalers or retailers, you may not be required to charge sales tax. These business entities will have a state resale certificate, which gives them tax-exempt status. Schools and libraries have tax-exempt status as well.

If you are operating your business from a building you own, then you are responsible for paying the property taxes to the city or municipality where it is located. If you are renting a building to house your business, the commercial lease you sign may contain a clause stating that you are responsible for paying the property taxes as long as you rent that space.

In a situation where you have to keep inventory for your business, you may be charged a tax based on a percentage of its value. This tax is based on the amount of inventory you have in stock on a certain date each year, which is usually December 31. A business that owns equipment and furniture may also be subject to a personal property tax that is based on a certain percentage of the value of these items.

In the case of a sole proprietorship or a partnership, any income taxes due will likely be paid by the business owner or the partners. In most states, this is the case but some jurisdictions tax the business separately. Consult with an accountant who can explain what the requirements are for the area where your business is located.

If you are incorporated, different income tax rules apply. The corporation is a separate entity for tax purposes. Under federal law, corporate income tax returns are due the 15th day of the third month after the end of the business year chosen by the corporation. If the official year end is December 31, then the company's income tax return is due by March 15 of the following year.

Another thing to know about taxes and businesses is that you will need to file income tax returns for your business each year, whether you turned a profit or not.

For complete guidelines and resources for business taxes, visit the official IRS Business tax page at http://www.irs.gov/businesses/index.html.

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