So let's get serious for a minute.. It’s one of Benjamin Franklin’s most famous quotations: “In this world nothing can be said to be certain, except death and taxes” While business taxes are a certainty, the actual tax rates you pay are anything but certain, so let's keep informed and up to date with this important part of our businesses.
☞ What’s an EIN Number and Do I Need One?
Typically, most businesses need an Employer Identification Number (EIN), also known as a Federal Tax Identification Number. This nine-digit number, expressed as XX-XXXXXXX, is used to identify your business on all business tax reporting returns and forms. You will need an EIN if you answer YES to any of the following questions: Do you have employees? Is your business a corporation or a partnership? Do you file employment, excise, or Alcohol, Tobacco and Firearms returns? Do you withhold wages on income, other than wages paid to a non-resident alien? You can apply for a new EIN online.
☞ 3 Steps to Filing Employment Taxes
Running a business with employees definitely adds several line items to your tax responsibilities. Specifically, you’re required to report and deposit employment taxes, which include federal income taxes, Social Security and Medicare taxes, and Federal Unemployment (FUTA) taxes... [as if dealing with employees isn't enough lol]
Depositing Employment Taxes
According to the IRS website, you must deposit any federal income tax withheld, plus both the employer and employee Social Security and Medicare taxes. FUTA tax deposits are required for any quarter in which the tax is more than $500 and must be made by the end of the month following the end of the quarter. The FUTA tax is paid entirely by you, the employer, and is not withheld from your employees’ wages. All federal tax deposits must be made electronically through the Electronic Federal Tax Payment System (EFTPS).
Reporting Employment Taxes
Generally, you must report wages, tips and other compensation paid to your employees by filing Form W2 with the IRS at the end of the year. This is in addition to reporting the taxes you deposit. The reporting of income, Social Security and Medicare taxes is done each quarter using Forms 940, 941 (for most businesses) and 944 on paper or via e-file.
Maintaining Tax Records
You should keep all records associated with your employment taxes, including amounts and dates of all wage and pension payments made to all employees, for at least four years.
☞ How to File Self-Employment Taxes
Hey freelancers this is a good one!! The IRS considers you self-employed if any of the following applies to you: You are in a trade or business as a sole proprietor or independent contractor. You are a member of a partnership or limited liability company (LLC) that carries on a trade or business (limited partners are usually exempt; LLC members may be treated as employees if the business makes an election). You are otherwise in a business for yourself, including a part-time businessIf you are self-employed earning $400 or more per year, you will need to pay self-employment taxes, which consists of Social Security and Medicare taxes, in addition to income taxes. Since you don’t have an employer withholding these taxes from your wages, you must estimate them and pay them quarterly.
Use Form 1040-ES for this. To report your Social Security and Medicare taxes, file Schedule SE on Form 1040.
Husband and wife ventures
There may be some tax advantages for a business run exclusively by a husband and wife. The Small Business and Work Opportunity Act of 2007 allows a husband and wife business to avoid being treated as a partnership for federal tax purposes. Instead, each spouse is treated as a sole proprietor and all income, gains, losses, credits and deductions are divided between the spouses based on their respective interests in the venture. This may give each spouse credit for individual Social Security earnings. Like everything involving tax laws, it gets complicated, so consult with your tax advisor to see if you qualify.
☞ Understanding State Business Taxes
Your business tax obligations don’t stop at the federal level. State and local government agencies want slices of your revenue, too...
State Income Taxes
Nearly every U.S. state has a business or corporate income tax on their books and your tax requirement depends on the legal structure of your business. For example, a Limited Liability Company (LLC) is taxed separately from the business owners, while sole proprietors use the same tax form to report personal and business income taxes.
State Employment Taxes
In addition to federal employment taxes, you must pay certain state employment related taxes as well. All states require payment of state workers’ compensation insurance and unemployment insurance taxes. The following states or territories also require businesses to pay for temporary disability insurance: California, Hawaii, New Jersey, New York, Rhode Island, and Puerto Riiiico!
☞ About Collecting Sales Taxes
As a consumer, we’re familiar with paying sales tax whenever you purchase goods from a retailer. The sales tax is collected from the buyer by the seller, who then forwards it on to the state. As a businessperson, you are the seller, so it’s your responsibility to collect, report and pay sales tax on most everything sold to a customer in a state where your business has a physical presence.
That means the state where your physical building sits, where your employees are living or working, or where you warehouse inventory. But sales tax rates and regulations are set by each state and the rules are as different as the weather in Texas versus California. Adding to the complexity, local municipalities such as cities and counties, may tack on additional sales taxes. To find the general sales and use tax rates and regulations for your area, go online and search your state’s department of revenue or taxation!
Doing the paperwork
Generally, to collect sales tax you’ll need a license or seller’s permit from your state, which assigns you a special identification number. You keep track of sales transactions and taxes collected, then file a return and pay the taxes to the state. Filings and payments might be done monthly, quarterly or annually depending on the dollar amount of your sales.
Internet sales: To collect or not to collect?
Internet sales have added yet another layer of confusion. There continues to be debate about whether a business must collect sales tax on products purchased online and shipped to states where they have no physical presence. Some states have passed laws requiring the collection of sales tax regardless of physical presence. And the federal government is considering legislation that would affect how this works on a national level.
To learn more about how this may apply to your business, go online and search for “[YourState] Internet sales tax”
And this is how we started the year, our Tax Session was very informative and we are happy to share the info with you, remember to always consult with your tax professional if you have questions about federal and state tax laws!!
Extras:
◎ Your main resource for all things tax is the Internal Revenue Service website. ◎ Take advantage of the many tax-related resources the U.S. Small Business Administration has available online.
◎ As you know, we recommend the Quickbooks Self-employed Software for new businesses management, and here you have a well explained note they recently published about taxes too.. Read it, or at least look at it, you might find it useful www.Quickbooks.Intuit.com
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