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Why Taxes Are An Essential Part Of A Successful Business

As a business owner, you’re responsible for paying taxes on the income your business generates. But what are the different types of taxes you might be liable for, and how do they work? This article will provide an overview of the most common business taxes, so you can understand what to expect come tax time.

Work With A Professional

Before we get into the details of business taxes, it’s important to note that tax laws and regulations can be complicated, and you may want to enlist the help of a professional accountant or lawyer to ensure that you’re in compliance with all applicable rules.

The people behind April 15th say that an experienced professional will also be able to provide advice on how your particular business structure might affect the taxes you pay, and suggest strategies to help minimize your tax burden. This will ultimately save you time, money, and stress in the long run.

Income Tax 

One of the most well-known taxes is the income tax. This type of business tax applies to both corporations and individuals, though different rules may apply depending on the status of your business. Generally, businesses are required to report their income and pay taxes on the amount they make.

Depending on the region, federal and state taxes may be due in addition to local taxes. When filing your taxes, it’s important to keep accurate records and make sure you’re aware of all applicable laws.

Payroll Tax 

If your business employs staff, then payroll taxes are likely due. These taxes are paid by both employers and employees, though in some cases the employer may cover the full amount. Payroll taxes may include Social Security and Medicare tax, federal income tax withholding, state income tax withholding, and other local taxes. 

The Social Security and Medicare Tax is the responsibility of both employers and employees. Employers were responsible for 6.2% of an employee’s wages up to $137,700 in 2020, while employees were responsible for the same amount. 

Federal income tax withholding is determined by employees when they fill out Form W-4. This form is used to determine the amount of money that should be deducted from each employee’s wages for federal income taxes. The amount will depend on an employee’s filing status and the number of allowances claimed on the W-4.

State and local taxes will vary by location. Many states have their own income tax that should also be withheld from employees’ wages. In addition, some cities may levy taxes that should also be accounted for. Employers should consult with their state and local governments to determine the applicable laws and regulations.

Self Employment Tax

If you are a sole proprietor running your own business, you may also be subject to self-employment tax. This type of tax is designed to help fund Social Security and Medicare benefits for self-employed individuals and their families. The current rate of Social Security tax is 12.4% of your net income (up to a maximum earned income of $142,800). Medicare taxes account for 2.9%, with no limit on the amount of earnings subject to taxation. 

It’s important to note that the income on which you will be taxed is not just what you draw in terms of wages or salary—it is also any money generated by the business, such as revenue from sales and investments. Self-employment taxes can quickly add up, so it’s important to keep a close eye on your finances and consult with a professional if you have any questions. 

Excise Tax 

In addition to income and payroll taxes, certain businesses may be subject to excise taxes. These taxes are typically levied on specific products or services, such as tobacco, fuel, alcohol, gambling activities, and phone and internet services. Excise taxes may be collected at the federal, state, or local level and should be included in the price of your product or service.

It’s important to check with your state and local governments to ensure you are familiar with all applicable excise tax laws. There may be certain exemptions available depending on the industry you work in, so it’s important to do your research and understand the regulations in your area.

By understanding all applicable taxes that may apply to your business, you can save yourself time, money, and stress in the long run. It’s wise to consult with a professional accountant or tax attorney who can help you navigate the complex laws and regulations before filing your taxes.

Maintaining accurate records and understanding all applicable laws will also help ensure that you are filing your taxes correctly, which can help reduce the chance of any audits or penalties down the road. 

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