Taxes a Small Business Need to Pay

words Al Woods

Paying tax as a small business can be complicated, and unlike when you pay taxes as an employee, you need to do ePaying tax as a small business can be complicated, and unlike when you pay taxes as an employee, you need to do everything yourself. You may need to pay several different taxes beyond tax on your earnings, and especially if the company has employees, the process can become more complex. A specialist business tax accountant will make you aware of several tax types, so that you don’t get caught with a penalty. 

However, for small businesses, a great option for easy tax preparation and calculation is by making tax digital.

Small Business

Income tax

Income tax will make up most of the tax that a small business will need to pay each year, and works similarly to income tax that you pay as an employed individual. You must pay income tax on any earnings that come from selling goods and services, from investments, or on a property sale. C-corporations pay income tax based on the net profit made over the year, while for ‘pass-through entities’ like LLCs, partnerships, and sole proprietorships, the individuals are liable to pay income tax to the company.

Self-employment tax

As a self-employed individual, you’re also liable for additional taxes, including social security and Medicare tax. These are both paid by employed individuals, but the company that employs them is responsible for paying for half of the amount owed. When self-employed, you need to ensure that you pay the full amount if more than $400 is earned over the year.

new Business

Sales tax

Sales tax isn’t paid at a federal level, but rather, to the state you trade in, and 45 states require some tax level on sales. As a business owner, you’re responsible for paying the sales tax in your region and reporting it to the local or state government. A recent change that may need to be considered is that e-commerce sellers may need to register sales tax, even when products are bought out-of-state. As state tax laws are so different, it’s recommended that a professional be instructed when paying sales tax and other taxes to make sure that the correct amount is paid. You can find a list of tax preparation pricing here to get an idea of a reasonable amount to pay: https://taxfyle.com/tax-preparation-fees-pricing.

Excise tax

Depending on the industry you’re in, you may need to pay an additional tax for selling your products or services. Excise taxes aren’t paid directly by the consumer, and often, the amount is included in the cost of the product itself. Examples of excise tax are cigarettes and alcohol.

Payroll tax

If you have individuals working for you, you’ll be responsible for paying a portion of their taxes through payroll or employment taxes. The primary examples of this are social security, unemployment, and Medicare taxes. Their employer contributes half the amount that needs to be paid in tax by the employee. Payroll tax can become complicated, especially as a business grows and more people are employed, so this is another area where a specialist can be useful. Also, there is a possibility for some businesses to get a payroll tax refund. This is because to help businesses keep employees on the payroll during the pandemic The Coronavirus Aid, Relief, and Economic Security (CARES) Act created ERTC – giving some employers and businesses the means to receive up to 50% of qualifying wages paid from March 13th to December 31, 2020. For those eligible, it is worth keeping in mind the employee retention credit deadline 2022 so as not to miss out on what could be a significant benefit during a difficult financial period. 

Property tax

If you have a brick-and-mortar business or own commercial property or land, you’ll need to pay property tax each year to the local government.

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