How do taxes work for a small business?
Owning a business is a dream that many people share. When you are going to be a business owner, it is important to understand all of the expenses that your company will incur. One cost that a lot of business owners do not always think about is their taxes. There are a variety of different taxes that a business may need to pay.
Similar to individuals, all business owners also need to pay taxes. The way taxes are paid is based on the way the company is legally structured. Businesses that are organized as single-person LLCs or sole proprietorships and S-corporations will pay their business income taxes through their personal income tax returns. Those that have more complex structures, including multi-owner LLCs and other partnerships, will pay taxes through a business tax return. The tax paid is based on the net income of the company and the underlying tax rate.
All business owners are also obligated to pay payroll taxes. If you have people that work for you, it will be required that you pay FICA and FUTA taxes on a quarterly basis. These taxes can be significant as they will end up costing more than 7.5% of your payroll. You also are obligated to withhold a similar tax from your employee’s paycheck and remit it to the IRS.
Depending on the state that you operate in, you may have to pay a sales tax as well. Most of the time, sales taxes are passed directly to the customer. However, you are going to have to retain this tax revenue and remit it to the local taxing authority.
Real Estate Taxes
Many businesses see the value in owning their own real estate. If you do own real estate as opposed to renting, you will also have to pay real estate taxes to your local county. If you have a mortgage on the property, the monthly payments may be escrowed.