Business taxes refer to taxes paid to a government by business entities, such as corporations. There are many different types of business taxes, and they cover many other areas of the economy. Taxes include a wide range of fees that businesses pay to the government to remain competitive in a particular market. Some taxes include income tax, sales tax, and corporate tax. Income taxes are imposed on all working individuals, including those who work for employers directly and receive their income from self-employment or investments such as royalties or dividends.
Types of Business Tax
Federal Income Tax
The Federal Income Tax is a tax imposed on earnings according to the income level. A business must file an income tax return every year and pay any tax owed for the previous year by April 15th of the subsequent year. A small business can qualify for quarterly estimated income tax payments but accounts for 75% of their annual earnings instead of 100% each quarter. Those eligible must pay 100% on April 15th, 90% on June 15th, 85% on September 15th, and 80% on December 15th.
State Income Tax
A state income tax is imposed on the earnings of an individual and entity in a particular state. The rates can vary from state to state, but the basics remain the same. Therefore, if you start a business in New York, you will most likely pay different taxes than if you opened your business up in California. However, some states don’t have a personal income tax, like Florida and Texas. If a person owns more than one business located in different states, they must file multiple income tax returns with each form that they held a business location.
A self-employment tax is an amount on top of the Federal income tax and Social Security contributions to help provide coverage of certain benefits, such as Medicare and social security. This tax is 12.4% on earnings over $118,500 and 2.9% on earnings up to $118,500 (1.45%) for a total of 15.3%. This tax is also referred to as the SECA tax (Self-Employed Contributions Act).
Social Security Tax
Congress created the Social Security Tax in 1935, and it ensures that all working people will have a source of retirement income if they become disabled or are unable to work due to old age. A self-employed individual pays 12.4% on the first $118,500 of their earnings, including the employee and employer portions of the Social Security tax. For example, if you earn $100,000 in a year, only $86,500 is considered income, and your share of the Social Security tax would be $11,813 (1.45%).
A sales tax is imposed when a business sells a product or service to its customer. This is assessed on top of the base price that both parties decided before any negotiations were done or You signed any final paperwork. The states have control over setting these rates and what items are subject to sales taxes or not. In most states, food and medical supplies are not taxed. However, sales taxes are imposed on intangible items such as books, magazines, and software.
Value Added Tax (VAT)
A value-added tax is a business tax that provides the government with an additional source of revenue. It is calculated based on the product’s sale price plus any other fees
taxes to arrive at a final amount that has to be paid to the authorities. The VAT is typically applied at each production stage and not at the point of sale like in other countries. So, for example, a business person buys raw materials for $100 and adds value by producing a product that can be sold for $200 and pay a VAT of $10 (10%).
Business taxes are a significant responsibility that You must understand. You need to be aware of the different types of taxes they apply to and their impact on your business. Contact your Master Plan Tax Services today if you have any questions or concerns about business tax services and how they work!