When you think of taxes for your business, likely you’re thinking about income taxes on your profits, especially at this time of the year. But your responsibilities for taxes don’t stop with income taxes. You may be obligated to pay other taxes related to your business.
Below are five other taxes you may have to deal with.
Small Business Owner Taxes
1. Self-Employment Tax
If you’re self-employed, you pay Social Security and Medicare taxes on your net earnings from self-employment (your profits). For 2014, the Social Security portion of the tax applies to profits up to $117,000. The Medicare tax applies to all of your profits; there is no dollar limit. If your profits are high enough, you’ll pay an additional 0.9% on profits over $250,000 if you’re married filing jointly, $200,000 if single, or $125,000 if married filing separately.
If you have a sideline business but also work for another company, your self-employment tax is reduced to the extent you pay Social Security tax on wages you receive from the job. But because all profits are subject to the Medicare tax, there’s no savings here.
If you’re married, each spouse pays Social Security and Medicare taxes separately on his/her share of wages and self-employment income. Spouses in community property states follow special rules to ensure that the spouse earning the business income is the one who pays self-employment tax (and earns the credit for Social Security and Medicare purposes).
If you weren’t profitable, you can choose to pay a minimal amount of self-employment tax. Why would you voluntarily pay this tax? So that you earn credits for Social Security purposes.
Find more details about figuring and paying self-employment tax in the instructions to Schedule SE of Form 1040 (PDF).
2. Employment Taxes Wages and Other Taxable Compensation
If you own a corporation (C or S), your salary and other taxable fringe benefits are subject to FICA in the same manner as compensation paid to other employees. There are no distinctions in the tax on payments to owners versus payments to rank-and-file employees.
Find details about employment taxes in IRS Publication 15 (PDF). Unless you’re in Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington or Wyoming, check with your state tax department about income tax withholding responsibilities with respect to employee compensation.
3. Unemployment Taxes
This tax applies at both the federal and state level and the taxes go to fund unemployment benefits for workers who are laid off or fired (other than for a serious cause). Unemployment taxes are imposed only on employers; employees do not pay unemployment taxes.
Find details about FUTA, the federal unemployment tax, in the instructions to Form 940 (PDF). Also, check with your state tax and labor departments for details on state unemployment taxes.
4. Sales Taxes
Unless you’re in Alaska, Delaware, Montana, New Hampshire and Oregon, you may be required to collect sales taxes on the goods and services you sell and remit the funds to the state or states they’re due. If you sell online you may be required to collect taxes on remote sales, complicating your collection activities. Currently, there are nearly 10,000 sales tax jurisdictions (due to additional sales taxes imposed not only by states but counties and municipalities).
Check with your state about whether your goods and services are exempt from tax. If not, then learn about your collection responsibilities. If you sell online, consider using a service to help you with sales taxes. Certified service providers authorized under the Streamlined Sales Tax Governing Board for this purpose: AccurateTax; Avalara; CCH; Exactor; FedTax and Taxware.
5. Excise Taxes
Excise taxes are like a federal sales tax on certain items. Sometimes the payment is automatic (e.g., it’s rolled into the price of gasoline you pay at the pump) so there’s nothing for you to do. Other times your business must pay the tax separately to the federal government (e.g., a 10% tax on indoor tanning services if you own a tanning salon).
Learn more about excise taxes from the IRS.
During this tax season, think beyond your income taxes to make sure you’re addressing all of your tax responsibilities. Work with a great tax advisor so you’re not caught short and penalized for failing to pay what you’re supposed to.
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