Every business owner wishes to grow and expand their trade to scale financially. And to do it successfully, they need to be compliant with certain business laws.
One of the many business laws that govern the day to day operations of trade is taxation.
Business tax laws are a set of rules and regulations that decides the taxes to be paid to the federal and state government by a business owner.
It is noteworthy that business tax laws are not as straightforward as they may seem. Particularly, since these are legal matters, it is rather beneficial to have a tax attorney or an accountant to handle such critical tasks.
Nonetheless, we ought to seek what taxes a business needs to pay. And what could be the repercussions if they are not paid.
The simplest of all the taxes levied by the federal and the state governments is an income tax. According to the IRS’s definition, All businesses and individuals are required to pay income tax, except for partnerships.
The income tax is calculated annually and is a pay-as-you-go type of tax. Perhaps, it can also be referred to as a direct tax. However, as the experts at Silver Tax Group explain, you must be careful with the returns that you file. If there are any discrepancies found out by the IRS, you are bound to receive an IRS audit.
For partnerships, on the other hand, the income tax is not levied on the corporation but on the individual partner’s profit share.
Also, it is noteworthy that income tax levied by the federal system does not vary across the whole country. But, it does vary from state to state.
Most of the small and medium-sized businesses have several headcounts employed with them. According to the federal tax norms, corporations need to pay tax on the salaries that they pay to their employees.
IRS states that employment taxes help with covering several benefits offered to the employees in the hour of need.
For this reason, employment taxes usually include Social Security and Medicare taxes, along with Federal Income Tax Withholding, and Federal Unemployment (FUTA) taxes.
Notably, it is FUTA that ensures the employees receive financial support when they are out of a job. While Medicare and Social Security taxes help with other emergencies.
For certain products manufactured and sold by businesses, the federal government taxes excise. For example, a business that deals in the import or export of goods are required to pay excise tax.
It is noteworthy that there are several types of excise taxes, and they are not directly levied on profits or income.
For instance, Form 720 is a type of excise tax that includes environmental taxes, communications and air transportation taxes, fuel taxes, tax on the first sale of heavy trucks, tractors and trailers, etc.
Another common excise tax is Form 730 which applies usually to businesses accepting wagers or lottery pooling. The business owners are needed to pay taxes on the wagers they receive.
Before knowing what these taxes are, it is important to understand what is a withheld income.
Usually, employers hold back a portion of the salaries of their employees. These usually include medicare costs and insurances. Withholding a portion of employees’ income helps reduce the taxes to be paid by the employees personally.
The business owners already pay the taxes for the withholding income directly to the federal and state governments. However, there’s still the income that is not withheld.
Estimated taxes are the ones that the employers need to pay for the income which is not withheld. And it usually, is levied annually.
While most of the aforementioned taxes are levied on businesses with human capital and resources, there’s another set that outlines the taxes to be paid by self-employed personnel.
Generally, if a self-employed person earns $400 or more annually, they are required to pay self-employment tax. Besides, people working with or for the church are also levied under SE tax norms. If the church pays a member or a minister $108.28 or more, the beneficiary needs to pay SE tax accordingly.
The SE tax helps cover Social Security costs and Medicare costs, which are primarily meant to offer retirement benefits and insurance covers, respectively.
It is noteworthy that certain exceptions are also made for special professionals. Fishing crew, aliens, notary public, government employees, and people working with international organizations fall under this exception category.
The norms surrounding business tax laws are very complex. Perhaps, a vivid knowledge about what to include and what not when filing for taxes can help understand the norms better.
Nonetheless, there are always chances of making mistakes. Therefore, knowing the right procedure to file and pay the taxes can save business owners a lot of trouble down the line.
To file for the applicable business tax norms, it is vital to go by the book.
The very first step that needs to be done is getting an Employer Identification Number or EIN. Most businesses are required to have EIN as soon as they register their business and start operating.
The EIN would help federal and state authorities to identify any business. However, it does not help identify the taxes to be paid. It is vital that professional accounting personnel such as a Tax Attorney be involved in the process. The professionals better understand the inclusions, exclusions, and customary procedure to file and pay the taxes.
The last step is segregating the income, profits, and other credits that a business has received during the year. After all, the taxes are mostly levied on the inbound transactions only. But, once again the attorney would be of great assistance, especially if there are estimated taxes and excise taxes to be paid.
With all the necessary information filled in and taxes paid rightly, there are certainly no legal harms, particularly from the IRS that can trouble a business. But, the only thing to be ensured is paying the right taxes and that too in time.