Taxes are an inevitable part of doing business. As a business owner, it’s crucial to understand the different types of taxes you may need to pay to stay compliant and avoid penalties. Though taxes can seem complicated, having a basic knowledge of the most common business taxes can help you budget properly, file correctly, and avoid any surprises down the road.
The Role of Tax Attorneys
Before we dive into types of business taxes, it’s important to know the role of IRS attorneys.
The IRS (Internal Revenue Service) is a US government agency responsible for the administration and enforcement of internal revenue laws. It collects most federal taxes, including income tax, payroll tax, and several others.
When someone refers to IRS taxes, they’re generally talking about taxes that are administered and collected by the IRS. So, taxes like income tax, payroll tax, and estimated tax payments are all taxes managed by the IRS.
However, income tax matters can be difficult to understand and manage. This is where the expertise of IRS Tax attorneys proves invaluable.
What is an IRS Tax Attorney?
An IRS tax attorney is a lawyer specializing in US tax laws. They assist businesses in understanding their tax obligations, resolving disputes with the IRS, and providing representation during audits.
Why Consider One?
If your business is navigating a tricky tax situation, undergoing an IRS audit, or disputing a tax assessment or fraud, having a tax attorney can ensure you are properly represented and your rights are protected.
Beyond their deep understanding of tax laws, the confidentiality they offer can be crucial for businesses handling sensitive tax issues.
Given the potential complexities of income tax and tax audits, seeking the assistance of a tax attorney can be a proactive measure to prevent costly mistakes and ensure compliance.
8 Common Types of Taxes
Let’s explore eight of the most common types of taxes that businesses should be aware of. Having a working understanding of these taxes can help you make smart financial decisions and keep your business running smoothly.
- Income Tax
One of the most well-known business taxes is income tax. This tax is levied on the net income or profits your business earns. The federal income tax rate for corporations is 21%. Sole proprietors and partners pay income tax at individual rates, which range from 10% to 37% depending on taxable income. Income tax is usually paid quarterly. Understanding your potential income tax burden can help you set money aside to cover what you owe the government.
- Payroll Tax
Payroll taxes are withheld from employee wages to fund specific government programs. As an employer, you are responsible for withholding federal income tax as well as Social Security and Medicare taxes from employee paychecks. You must then send these withholdings to the IRS along with your share of Social Security and Medicare taxes. Self-employed individuals have to pay the full payroll tax themselves. Payroll taxes can add significantly to your overall tax bill, so accurate calculation and timely payment are essential.
- Sales Tax
Sales tax is a percentage charged on sales of goods and services. Sales tax rates vary widely by state and local jurisdiction. As a business owner, you are responsible for collecting sales tax at the point of purchase and sending it to the appropriate tax authority. Failing to collect sales tax when required can result in penalties. You may be able to keep a portion of the sales tax you collect as compensation for your role in the collection process. Understanding sales tax requirements in all areas where you do business is key to remaining compliant.
- Excise Tax
Excise taxes are paid on specific goods, like gasoline, alcohol, and cigarettes. They are usually built into the price of the product and are paid by the manufacturer or wholesaler. However, businesses may need to pay excise taxes on goods they import or manufacture. Any business that produces, sells, or imports goods subject to excise taxes needs to register and file excise tax returns.
- Property Tax
Property taxes are charged annually on real estate and business property. The tax is usually calculated based on the value of the property. Property tax rates vary by location. Businesses typically pay property tax on manufacturing equipment, office equipment, company vehicles, and any real estate owned. You may get a property tax bill annually or make payments in installments. Understanding property tax requirements can help you budget for this ongoing expense.
- Franchise Tax
Franchise tax is an annual tax some states levy on businesses operating in that state. It is based on a business’s net worth, capital, or income. Franchise tax often applies to partnerships and corporations but not sole proprietors. The rates and rules for franchise tax vary considerably by state. Some states exempt new businesses from franchise tax for the first few years. Knowing whether you need to budget for franchise tax and understanding the amount you owe can help you plan your finances accordingly.
- Business License and Permit Fees
Most businesses are required to obtain various licenses and permits from state and local governments. There are often fees associated with these licenses and permits that must be paid annually or periodically. Common examples include business licenses, food service permits, liquor licenses, and commercial vehicle registrations.
- Estimated Tax Payments
Many small businesses, sole proprietors, partnerships, and S-corporations need to make estimated income tax payments quarterly. Required estimated payments are based on the prior year’s tax liability. Failing to make sufficient estimated payments can result in tax penalties. Understanding estimated tax requirements and properly budgeting for these payments will help you avoid issues later.
Navigating business taxes can be complex, but understanding the basics is key to running a successful, compliant company. Be aware of how income, payroll, sales, excise, property, franchise, and estimated taxes apply to your business. Seek assistance from qualified tax professionals to ensure you are adequately budgeting for taxes, filing correctly, collecting and remitting taxes in a timely manner, and avoiding costly penalties. With some knowledge of the most common types of business tax, you can confidently fulfill your tax obligations and keep your company on the right side of the law.