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Taxes, taxes, taxes. Like it
or not, they are there. And, to make sure your obligations
are being met, here is a list of those and some you may have
forgotten:
- Federal income tax
- State income tax
- Local income tax
- Social security/Medicare
- Unemployment compensation
- Sales tax
- Excise tax
- Use tax
- Intangible property taxes
Federal income taxes apply to
all businesses, but the tax rate and filing procedure varies
with the type of business entity. C- corporations are taxed
on the net income before taxes, which is found in the income
statement.
The same applies to S-corporations,
but there is some maneuverability for the business' owner.
Under this type of corporation owners are expected to provide
themselves with an acceptable level of compensation in the
form of a wage or salary based on the type of business, and
the rest of that individual's income can be diverted to dividends.
The dividends will come
back to the owner's personal filings, but are not subject
to social security taxes. Secondly, it reduces corporate tax
exposure on net income. Just issue the dividend before the
end of the tax year.
Sole proprietors incorporate
all business income into personal filings via the Schedule
C. For employees you must match their Social Security deductions
at the rate of 6.2% on the first $76,200 of their income.
Your self-employment rate is 12.4%. You must match the employee's
Medicare deduction of 1.45% and pay 2.9% on self-employment.
There is not upper limit on income.
State income taxes vary from
state to state. Some don't even have an income tax. To learn
more for your state go to the State
Government Web Servers site to access your state's official
web site.
Unemployment compensation tax
is for those of you with a workforce. The tax is collected
by your state's Department of Labor. This tax funds unemployment
compensation to individuals who typically lose a job through
no fault of their own. For a detailed description of your
state's tax rate and procedures go to the AFSCME
State Departments of Labor directory.
Sales taxes represent state and
local revenue streams from the sale of tangible products.
If you sell product directly to the end-user, your business
is responsible for collecting the sales tax and passing it
on directly to your state's Department of Revenue. Even if
the tax is for more local entities within the state you will
typically pass it on to the state, which will then redistribute
the funds. I suggest you access your state's Department
of Revenue directory at the National Association of State
Information Resource Executives (NASRE) web site.
Excise taxes can come in two
forms: A penalty by a company for failure to comply to certain
state statutes or procedures, and A periodic license fee to
perform a certain function within the specific state charging
the tax, typically a tax in addition to another sales tax.
State and local taxing districts
commonly exercise this revenue option. Along with excise fees,
usage, lodging, intangible and fuel taxes are examples most
often related to businesses in specific categories of product
and service. The Federation
of Tax Administrators and other hyperlinks noted above
should provide you adequate sources of information about all
tax obligations regarding your business.
It's one thing to pay the tax.
It's another to pay penalties due to ignorance. Know your
obligations.
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