This article will guide you through the labyrinth of small business taxes and describe in detail the different tax types to which your small business might be exposed. Use the article to find out which federal and state taxes you, as a sole proprietorship owner, general member in an LLC, or a S officer. Corporate responsibility.If you’re looking for more tips, cpa for business tax has it for you.
Federal Sales Levy
The Internal Revenue Code (IRC) provides the source for taxing small business income. The tax code treats each entity type a bit differently but the small business owner ultimately pays the income tax on the business taxable profits. Sole proprietor is required to file schedule C to report business income and expenses and then report the taxable income on Form 1040 where he discloses all of his sources of income. Party of a partnership or LLC shall declare its portion of the company taxable profits on Form 1040 and Owner of a S. The same goes for the Corporation. The federal income tax rate to be paid by a small business owner depends on his / her filing status and residency status. For current tax rates please refer to IRS Publication 17 To file with the IRS, you may fill out the SS4 IRS form to receive the Employer ID Number (EIN).
Charge on Federal income
If your business operates in a state that levies income tax on business income, you will also be liable for that tax, irrespective of the federal tax due on the same revenue. Very few (seven to be precise) states do not impose income taxes, including Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Two more, New Hampshire and Tennessee, revenue gain only and profit profits only. In general state income tax rates range from the lowest rate in Illinois of 3 per cent to the highest rate in Hawaii of 11 per cent. To register with the Department of Revenue of each State, you must fill in the applicable registration forms to obtain State Tax ID number.
Payroll taxAs soon as your business starts hiring part-time or full-time employees, you will be subject to Federal & State tax withholding gross salaries (for current Federal withholding rates, please refer to IRS Publication 17 and for the Stare withholding rate, please refer to the Federal Revenue or Finance Department), Social Security, also known as FICA (currently 6.2 percent of the withholding rate). To register with each State, you should fill in an employer application with the Revenue Department and open an account with the State Department of Unemployment Insurance.
Sales tax is tax on gross sales to end users (as applied to resellers who buy the product for inventory) and has many names: transaction privilege tax, gross income tax, general excise tax and more. The tax is imposed by each State and includes, in many cases, base rates for all resident states and then additional rates that vary by county and city. Sales tax rates vary by states with few states imposing zero percent tax (such as Delaware, Montana & Oregon) and others imposing rates above 10 percent (such as Chicago Illinois)