John E. Pytte
Business Taxes 101
In the United States, both individuals and businesses alike are required to pay taxes. Generally, corporations are taxed a minimum of 15 percent and a maximum of 35 percent. However, the type of business you own and operated determines the kind of taxes you are required to pay and how they are paid. If you own a business or are planning on starting one, it is helpful to learn about the most common types of business taxes.
All types of businesses, with the exception of partnerships, are required to file annual income tax returns. Federal income tax is essentially the type of tax you pay throughout the year. It is generally paid as you go as you earn income throughout the year. Employees normally have personal income taxes withheld from their salary. However, if you do not pay taxes through withholdings, it might be required to pay estimated taxes to cover that amount. If you are not required to pay estimated taxes, you can pay whatever amount is due toward your taxes when you are ready to file your tax return.
There are different types of tax returns businesses must file for paying income tax. It’s important to check Business Structures to determine which returns you are required to file based on the type of business you own.
Any income you earn when you are self-employed, which you are when you own your own business, must be claimed in self-employment tax. It is paid through regular payments toward estimated taxes throughout the year. If you run your own business, you are required to make estimated tax payments if you expect to owe $1,000 or more in taxes when they file their tax returns. If your business is a corporation, you are required to make estimated tax payments if you expect your taxes to amount to $500 or more.
Self-employment tax relates to individuals who work for themselves. It goes toward social security and Medicare to cover retirement, disability and survivor benefits, as well as hospital insurance benefits. You are required to pay this tax if the net earnings are greater than $400 from self-employment.
When you own a business and have employees working for you, as the employer, you have certain responsibilities that require you to file employment taxes. Employment taxes include items such as social security and Medicare taxes, federal income tax withholding and federal unemployment tax (FUTA).
Certain types of businesses are also required to pay excise taxes. if you manufacture or sell certain types of products, receive payment for your services or use certain types of equipment, products or facilities, you are required to pay these taxes.
Form 720 is required for reporting federal excise taxes. The category of these taxes is also considerably broad and includes environment taxes, fuel taxes, communications and air transportation taxes, taxes on the first retail sale of trailers, tractors and heavy trucks and manufacturers taxes on the sale or use of a number of different articles.
If your business involves buses, trucks or tractor trailers traveling on highways, you would have to file Form 2290. The tax relates to vehicles having a gross weight of 55,000 pounds or greater.
In general, excise taxes must be paid anytime purchases are made on goods that are specific. They typically include the price of the product or activity.
These are the business taxes you should expect to have to pay if you own a business. It's wise to become familiar with them early in your career as a business owner so that you know to expect them when it comes time to file your tax returns.
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