Which Types of Taxes Do I Need To File?
Businesses are subject to a number of taxes on the Federal, state, and often local levels. Here is an overview of the small business taxes that must be paid.
Federal
Income Tax
Sole proprietors, partners, C Corp, and S Corp shareholders all pay income tax on their earnings. The same entities are also taxed on investments and other income sources reported on tax returns, as are C Corp shareholders.
Estimated Tax Deadlines
While many people are very aware of April 15 as Tax Day – the day taxes are due for the last calendar year – small business owners need to be aware that it is not the only tax day for them. April 15 is the sole red-letter day only for individuals. All business structures are required to pay estimated taxes on their income every quarter. The IRS and state governments require that business taxes be paid on a “pay as you go” basis, so that they receive taxes owed on a regular basis.
Estimated taxes on income need to be paid on the following dates:
Estimated taxes on income need to be paid on the following dates:
Quarter
- January 1-March 31
- April 1-May 31
- June 1-August 31
- September 1-December 31
Deadline
- April 15
- June 15
- September 15
- January 15 of the subsequent year
Failure to pay estimated quarterly taxes subjects your business to fines, penalties, and interest, just as failure to pay annual taxes does.
Employment Tax
Businesses with employees must pay multiple employment taxes and have sufficient funds to pay them, in all business structures.
You must pay Social Security and Medicare contributions, per the Federal Insurance Contributions Act (FICA).
Sole proprietors and some partnerships are subject to self-employment tax, which contributes to Social Security and Medicare.
Business structures with employees need to pay unemployment taxes, under the terms of the Federal Unemployment Tax Act (FUTA).
You must pay Social Security and Medicare contributions, per the Federal Insurance Contributions Act (FICA).
Sole proprietors and some partnerships are subject to self-employment tax, which contributes to Social Security and Medicare.
Business structures with employees need to pay unemployment taxes, under the terms of the Federal Unemployment Tax Act (FUTA).
Payroll Tax
Businesses are also responsible for withholding employees’ Federal and FICA taxes from their wages. (You do not have to withhold taxes from contractors or freelancers; they are responsible for calculating and remitting their own taxes.)
Excise Tax
If your business is engaged in certain goods or services, you may be subject to excise taxes. Affected products are alcohol, tobacco, coal mining, oil and gas and other fuels. Other industries may be affected as well, such as tanning salons and sports betting. It’s prudent to check with a professional about excise taxes vis-à-vis your business.
State and Local
Income Tax
More than 80 percent of U.S. states levy income taxes on businesses. If the state you do business in is one of them, you need to pay state income tax on your business income in addition to Federal income tax. Some states levy additional tax on C Corporations as well.
Your municipality may also levy income tax on certain types of businesses or certain locations. Make sure you check to avoid surprises such as fines and penalties.
Your municipality may also levy income tax on certain types of businesses or certain locations. Make sure you check to avoid surprises such as fines and penalties.
Estimated Tax
If states or municipalities impose taxes on business income, they may require quarterly estimated taxes as well.
Payroll Tax
Your business needs to withhold applicable state and local income taxes from employee paychecks.
Some states with a large percentage of commuters from contiguous states have reciprocity agreements regarding state and local taxes. Others tax employees who live in states other than the ones in which your business is located as if they live in the same state as the business, an arrangement known as “the convenience rule.” But some states may require you to withhold payroll taxes in the employee’s resident state if it’s different from the one you do business in. Your small business needs to know the applicable rules for your state and locality.
Some states with a large percentage of commuters from contiguous states have reciprocity agreements regarding state and local taxes. Others tax employees who live in states other than the ones in which your business is located as if they live in the same state as the business, an arrangement known as “the convenience rule.” But some states may require you to withhold payroll taxes in the employee’s resident state if it’s different from the one you do business in. Your small business needs to know the applicable rules for your state and locality.
Unemployment Tax
Your business needs to pay State Unemployment Tax Act (SUTA) taxes, to fund unemployment compensation benefits in the state. Note that three states, Alaska, New Jersey, and Pennsylvania, require employees to pay a portion of SUTA as well. You are responsible for withholding SUTA from employee paychecks in these states.
Property Tax
If your business assets include real estate or property, you will have to pay applicable property tax. Generally, property taxes are based on assessed value rather than market value. You may be able to deduct some property tax from Federal tax owed; it’s prudent to check with an accountant.
Sales Tax
Your business is responsible for charging applicable state and municipal sales tax on your products and remitting it to the tax authorities. Note that this applies to goods and services sold in bricks-and-mortar stores and online. Sales tax can be especially complicated, so it’s prudent to consult an accountant or tax specialist.
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