If you’ve been running your own business, you may be well familiar with the different taxes that you need to pay.
There are taxes paid on various levels and it’s important to know about them, especially if you’re just starting up your own business.
Based on how you operate your business, you can reference the information provided in this article to know which taxes concern you.
Here are different taxes that businesses are normally expected to pay:
- Small Business Income Tax
First off, we have the income tax. Once a business is established and active, they are expected to pay tax on the profit being made.
This tax on the business profit is influenced by the nature of the establishment. For instance, a small-scale establishment is most likely going to be taxed on the business owner’s personal tax returns.
On the other hand, businesses in the sole proprietor category are taxed on their net income. This also applies to single-member LLCs.
- Corporate Income Tax
Unlike small businesses, corporations aren’t taxed through the owner’s personal tax returns. Instead, they are taxed separately.
An IRS Form 1120 is used by corporations to make their annual statement of income.
For a corporation’s net income to get taxed, the corporation must have given dividends to a number of shareholders.
However, income that’s left with the corporation in their retained earnings account isn’t subject to tax.
- Self-Employment Tax
This type of tax is associated with partnership members, sole proprietors, and owners of Social Security LLC and Medicare LLC. The self-employment tax that they pay is determined by the net income of their establishment.
In contrast to the aforementioned self-employment taxed establishments, corporation owners don’t pay self-employment tax.
This is because owners of S Corporations are taken as shareholders and not self-employed individuals. Self-employed individuals can apply for some tax relief on what they spend to run their business.
- Dividend Tax
Owners of corporations aren’t self-employed, rather they are considered to be shareholders.
As a shareholder, any earnings received from dividends is taxed by the income tax.
- Property Tax
Property tax is collected from establishments that have their own real estate property. This tax, which is a local tax, is collected by the city where the property is located.
The value of the tax collected is determined by what the taxed property is worth.
- Sales Tax
When a business sells their services or products to clients, there are certain states that require a tax to be paid on items sold.
The business is expected to tax the customers directly when they make a purchase and then forward those taxes to the state of the customer.
- Excise Tax
When particular resources like fuel are used by a business, the business is required to pay an excise tax.
These taxes are also paid on other things like transportation and the likes. Form 720 is used yearly or quarterly to pay these taxes to the Internal Revenue Service.