When you run a business, various aspects must be considered if you wish to climb up the corporate ladder and experience steady growth. One such factor is staying on top of your business taxes. Planning tax payments help you to avoid paying them late or incorrectly, which would result in a penalty.
According to statistics, the total U.S. state government tax revenue stands at $1.27 trillion. While all businesses are subject to taxes, the type of organization you own determines which taxes apply to you and how to pay them. Keep reading as we look at types of business taxes and how to manage them.
Applying for an Employer Identification Number
An Employer Identification Number (EIN) is the federal tax ID number allotted to your business. Some companies may not be required to possess an EIN when filing business taxes, but typically most do. If the following items apply to your business, you will need to obtain an EIN as per the information on the IRS website:
- You withhold taxes on income paid to a non-resident alien
- You file Alcohol, Excise, Employment, Firearms, and Tobacco tax returns
- You have a tax-deferred pension plan
- You have employees
- You are involved with certain estates, real estate investments, trusts, farmers’ cooperatives, plan administrators, non-profits, or trusts
If you need an EIN, you can apply using the IRS website.
Types of Business Taxes
1. Estimated Taxes
Partners, solopreneurs, freelancers, and S corporation shareholders have to estimate tax payments if they expect they’ll owe $1,000 or more when they file their tax returns. Estimated taxes are paid quarterly. However, it can be confusing and challenging for new business owners to calculate the amount they must pay every quarter.
Getting your estimation right is essential, as you can receive a penalty if you underpay or miss these taxes. The IRS website presents a guide on estimated taxes which can be used to see whether this tax applies to your company and calculates how much you owe.
2. Excise Taxes
Excise taxes are paid on purchases of certain goods like gasoline and are typically included in the good’s price. For most businesses, fuel is a crucial component of operations, and they are required to pay excise taxes. These are collected from the sales of alcohol, airline tickets, motor fuel, health-related goods and services, and tobacco.
3. Employment Taxes
You must file and pay some federal taxes, such as federal unemployment tax, medicare and social security taxes, and federal income tax withholdings if you have W-2 employees. Additionally, every state has its own state-specific employment taxes, like workers’ compensation insurance and unemployment insurance, so ensure you get all the relevant information regarding your state’s taxation department. You can also use a w2 generator within a few minutes to avoid common, costly errors.
Sales taxes play a dual role of crucial significance for both governments and businesses. For businesses, the collection and remittance of sales taxes go beyond mere legal obligations; they are essential for maintaining compliance with tax laws. Properly handling sales taxes ensures businesses operate within the legal framework, shielding them from potential penalties and reputational damage. Moreover, sales taxes directly impact a business’s competitiveness, as accurate collection and management of taxes foster trust among customers and prevent any perception of price manipulation.
For instance, in the context of businesses operating within the state of Texas, understanding and adhering to Texas sales tax laws becomes particularly vital. By properly navigating and implementing these laws, businesses can remain fully compliant with state regulations, avoiding legal ramifications and fostering a favorable business environment. Recognizing the significance of sales taxes, businesses can proactively ensure regulatory compliance, build customer trust, gain a competitive advantage, and foster the growth and development of their operational environment.
4. Sales Taxes
Sales taxes play a dual role of crucial significance for both governments and businesses. For businesses, the collection and remittance of sales taxes go beyond mere legal obligations; they are essential for maintaining compliance with tax laws. Properly handling sales taxes ensures that businesses operate within the legal framework, shielding them from potential penalties and reputational damage.
Moreover, sales taxes directly impact a business’s competitiveness, as accurate collection and management of taxes foster trust among customers and prevent any perception of price manipulation. For instance, in the context of businesses operating within the state of Texas, understanding and adhering to Texas sales tax laws becomes particularly vital.
By navigating and implementing these laws properly, businesses can remain fully compliant with state regulations, avoiding legal ramifications and fostering a favourable business environment. Recognizing the significance of sales taxes, businesses can proactively ensure regulatory compliance, build customer trust, gain a competitive advantage, and foster the growth and development of their operational environment.
5. Income Taxes
Other than partnerships, every business has to file and pay taxes on the income they receive every year. While each state has imposed a corporate or business income tax, they all have their tax laws. It will help if you are well-versed with your required income tax at the local and state level as you prepare to pay your business taxes for this year.
6. Self-Employment Taxes
This type of tax is a medicare and social security tax added to your social security system coverage. With social security coverage, you can obtain disability, survivor, medicare, and retirement benefits.
Tips on Managing Business Taxes
1. Hire a Tax Lawyer
Tax law is broad and can be complicated in multiple ways. It’s recommended to work with a person who can help with your finances, and that’s precisely where a tax attorney comes in. They have the skills to defend you in court if you’re faced with a legal predicament regarding your taxes. When dealing with business compliance, law licensing holds a lot of significance. With a tax attorney, you can obtain the help needed to pinpoint loopholes that could get you into legal trouble.
2. Generate Payment Receipt
Whether you own a small or large business, recording your finances is crucial to ensuring everything runs smoothly. An entrepreneur should keep clean payment records because they reflect how much is spent.
Similarly, you can organize tax receipts based on their date of issuance and apps available to help with this. These apps can be incorporated into your system and calculate the amount you’ll be paying in taxes while keeping all your data safe due to their storage features.
3. Avoid Tax Penalties
If there’s one thing that results in businesses losing precious money, it’s tax penalties. You can be faced with roadblocks that are tough to overcome depending on your state or country’s tax laws. It’s best to research the country or state charges or penalties you’ll be subjected to if you fail to pay your taxes on time. Additionally, you will receive a severe tax penalty if you overcharge your clients or customers.
4. Keep a Professional Accountant
Hiring an accountant entails several benefits for your company. They especially come in handy when dealing with tax issues and business fines because they keep everything in order. A finance professional can help you plan for company expansion and advise you on improving operations and transactions. With an accountant, you can save a lot of time allotted to financial dealings and invest it into other aspects of your business, boosting productivity and sales.
5. Determine What’s Tax Deductible
Whether you use profits for business improvements, distribute them as a profit-sharing bonus, or pocket it personally, the amount is eligible for taxation. Profits are regarded as pre-tax income at both the state and federal levels. However, if you strategically allocate money to deductible expenses, you can reduce your total liability.
This strategy is crucial for new business owners who shoulder the burden of startup tax deductions, lowering their liability even more and making it harder to achieve growth. Depending on the type of organization you run and your goals, you can decide which deductions apply and need to be paid.
6. Separate Business Finances From Personal Ones
When starting a business, it’s not uncommon to pay for business expenses with your personal card. You might instinctively swipe your card because you are used to it and tell yourself you’ll handle separating the balance later. However, this can get messy quickly, primarily if an official financial inspection is conducted.
It’s best to separate business finances from personal ones, with different cards for both. Paying yourself a wage as you would to an employee makes it easier to manage and track the entire fiscal year.
7. Claim Overtaxed Finances
There’s a high chance you might be getting overtaxed. In that case, you should claim these monies. To reclaim these funds, you must have monthly and yearly audits. Suppose you have your facts straight and do your calculations correctly. In that case, you can claim tax overcharges by filing a complaint with the relevant taxing authority and retain more money in the future.
Business taxes can be challenging and overwhelming to navigate, but if you prepare for the process beforehand, you’ll save considerable time and hassle. Calculate, prepare, and plan your taxes to avoid hefty fees and penalties and make smart business decisions. You can consult and work with an expert if you’re not good with numbers or tax law intricacies. Paying taxes is inevitable, so managing them properly and practicing legal compliance will take you a long way. You can use the tips mentioned above to prepare for the upcoming tax season.