One of the most disastrous blunders possible for a new business is to fail to file correct taxes. Though, not the most exciting part of being a business owner, this is a crucial aspect of leadership that must be both well understood and well executed. Thankfully, there are only five types of taxes you, as a small business owner, need to be aware of.
1. Income Tax
All businesses must file an annual income tax return. The federal income tax is paid as you acquire income. For your employees, you will need to withhold their tax from their pay. The specific forms you will need to file are industry specific. You will need to personally research the necessary forms for your specific business, or contact a specialist.
2. Estimated Tax
In short, a business owner pays taxes on income by making incremental tax payments on the “estimated” income for that portion of the year.
3. Self-Employment Tax
Typically a small-business owner also finds themselves self-employed. If you are among the ranks of self-employed owners, chances are you will need to pay a self-employment tax which contributes to your participation in the Social Security program.
You need to pay Self-Employment Tax if you are self-employed and make a net income of $400 or greater in the year. To do this, you will need to file Form 1040 (Schedule SE).
4. Employment Tax
This is quite straightforward. Do you have employees? If yes, then you must pay Employment Tax. As the employer it is your responsibility to file these taxes and maintain record. Typically, this tax is withheld from the employee’s paycheck. This tax includes coverage in the following areas: Social security and Medicare taxes, Federal income tax withholding, and Federal unemployment (FUTA) tax.
5. Excise Tax
These taxes are highly specific and related to only a handful of industries.
For example, form 720 is a broad form that covers everything from environmental tax to heavy commercial machinery taxes. Form 2290 is for a federal tax on certain types of heavy machinery such as tractors, heavy trucks, and trailers. And Form 730 is only necessary for industries that accept wagers.
When you incorporate, be sure to ask your lawyer if your business will have any industry specific taxes in your state.