Taxation is a complicated thing, which is why small-sized business beginners struggle to cope up with that, which hampers the overall business structure. Since they don’t have a clear idea of how the tax liability is determined, they might face some unexpected consequences both in the present as well as in the future. One of the biggest reasons why business tax, or any state, is so difficult is because there is no single small business tax. This means there are variations in the taxation rates/criteria. For most occasions, small business owners put their attention towards fed income taxes and the rates that apply on the same. That said, federal tax is just one of the many taxes that are present in the country, and depending on the type of business (business structure, number of employees, and the kind of service and/or product you cater to), you may have to learn about other taxation systems that apply to your own business.
William D King explains all the different types of taxes that you must know about as a small business owner-
Let’s get into that!
- First, we have the regular INCOME TAX. This is the most familiar business tax and elsewhere. Here, income tax is paid on wages and from gains from the sale of properties and investment income. According to the size of the enterprise, it may also be required to pay tax on net income every single year.
- Second, we talk about EMPLOYMENT/PAYROLL TAX. The taxes applicable here include fed income taxes, Medicare and Social Security taxes, and fed/state unemployment taxes. You should hire a payroll company to manage this complicated tax to avoid severe penalties.
- Third on the list is the SELF-EMPLOYMENT TAX. As you have probably guessed, this is for the self-employed small business owner whose yearly earnings exceed $400. William D King says that there is some relaxation for self-employed businesses in special scenarios, such as church workers and fishing crew members.
- Fourth, we discuss what is known as EXCISE TAX. This is applicable for certain types of industries and product/service sellers where they are required to pay this indirect tax. For example, for cigarette makers, the tax is included in the price of their product(s).
- Fifth, we have SALES TAX. One thing to note here is that there is no federal sales tax present in the US; however, 45 states and thousands of localities impose this tax. Since customers have to pay sales tax at the point of purchase, you need to know about the same should your state levy this tax.
- The sixth and the last is PROPERTY TAX. For commercial property, land, and brick-and-mortar owners, you need to pay property tax to the city or county where your business is based.
Above mentioned are the six primary types of taxes that you should know in order to conduct business operations in the best way possible.