Small Business Taxes

December 12th, 2010 BY Claire Moore

There’s an old saying that the only sure things are death and taxes. For a business owner taxes certainly present all sorts of challenges. While there are many benefits to be derived from a good bookkeeping system, one of the main reasons why small business owners do their bookkeeping is because they know that they have to pay their taxes.

What taxes do small business owners have to track and pay? Here is a list of the general taxes due in almost every state.

Payroll taxes

Federal Income Tax and Social Security and Medicare Taxes

Small businesses generally must withhold federal and state income tax from their employees’ wages. You withhold part of Social Security and Medicare taxes (also known as FICA) from your employees’ wages and you pay a matching amount, dollar-for-dollar, yourself. Currently the percentage to withhold for FICA is a total of 7.65%: 6.2% is for Social Security and 1.45% is for Medicare.

To figure how much income tax to withhold from each wage payment, use the information provided by the employee on the Form W-4 that must be completed when hired. Then you will program this information into your payroll system or if you do payroll manually, you will use the information on the W4 form when you look up the amount to withhold using tax tables in IRS publication Circular E. Form W4 includes the employee’s marital status and number of withholding allowances claimed.

Seven states have no state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Two others, New Hampshire and Tennessee, tax only dividend and interest income.

Federal Unemployment (FUTA) Tax

You report and pay FUTA tax separately from Federal Income tax, and Social Security and Medicare taxes. You pay FUTA tax only from your own funds. Employees do not pay this tax or have it withheld from their pay. .

Get employment tax forms from the IRS at http://www.irs.gov/businesses/small/article/0,,id=99194,00.html

State Unemployment Tax

Unemployment is actually an insurance policy rather than a tax but it is reported and filed with your state payroll taxes where applicable. Unemployment Insurance (UI) is a federal-state program jointly financed through federal and state employer payroll taxes (federal/state UI tax). Generally, employers must pay both state and federal unemployment taxes if:
1. they pay wages to employees totaling $1,500, or more, in any quarter of a calendar year; or,
2. they had at least one employee during any day of a week during 20 weeks in a calendar year, regardless of whether or not the weeks were consecutive

However, some state laws differ from the federal law and employers should contact their state workforce agencies to learn the exact requirements.

Other payroll taxes: Some states may require the withholding and payment of other taxes. California, for instance, requires that employers withhold money for state disability insurance.

Click here for state links. http://www.ows.doleta.gov/unemploy/agencies.asp

Worker’s compensation insurance

While it isn’t actually a tax, most states require employers to carry worker’s compensation insurance on their employees. The insurance is required even if there is only one employee. Check requirements in any state where you conduct business. California for example requires a roofer to carry worker’s compensation insurance even if he has no employees while real estate brokers are required to carry this coverage on their agents even if they are independent contractors.

Out-of-state employers may need workers’ compensation coverage if an employee is regularly employed in California or a contract of employment is entered into there.

A number of factors go into determining the annual premium your insurance carrier will charge. These include your industry classification, your company’s past history of work related injuries (known as your experience modification), your payroll, any special underwriting adjustments such as use of a certified health care organization, and any special group or dividend programs you may be eligible for.
Sales tax

In the U.S. state and local governments can collect sales tax on goods (and sometimes services) sold within their borders. The tax can be assessed at any level of government from district to city to county to state. The rules and the rates charged vary widely from one area to another and from one business type to another, so you need to contact your sales tax authority as soon as you start your business and make sure that you understand and follow all regulations that apply to your particular business.

To locate your tax authorities click here http://www.taxadmin.org/fta/link/.

Certain states are exempt from sales tax including Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon.

Property tax

If your business owns property such as the building housing its store and offices, then property taxes will be assessed each year. If you’re considering purchasing a building for your business, be sure to take the amount of annual property taxes into account when planning your budget. If you lease your business location, examine your lease for terms that dictate who is liable for property tax payments.

Personal Property Tax

Many localities charge annual tax on the furniture, fixtures, and equipment owned by a business.

Local taxes

In addition to state taxes, some counties, cities and special districts impose sales and use, lodging, and/or other taxes.

Industry specific taxes Cigarette/tobacco, fuel, liquor, severance (for extraction of oil, gas, coal, and minerals)

Use tax:

If you or your business buys an item and you weren’t charged sales tax, you are probably responsible for paying a use tax on that item. Purchases made over the Internet, from mail order catalogs, or through toll-free numbers are sometimes from out-of-state vendors who may or may not collect state tax. You must pay use tax on anything that is normally taxable if you didn’t pay tax on it when you bought it.

A list of state tax offices can be found at http://www.business.gov/finance/taxes/state.html

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