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What are the 4 primary types of business taxes?

What are the 4 primary types of business taxes?

In the United States, there are four main types of business taxes that the federal government administers. Business owners or managers should be aware of their responsibilities in paying each type of tax, as well as any additional taxes they may have to pay at the state level.

Income Tax

Except for partnerships, all businesses in the country are required by the Internal Revenue Service (IRS) to pay income tax. Businesses can choose to pay their taxes throughout the year by opting for the withholding tax payment method, or they can pay estimated income tax when they file their federal tax returns. Business owners should be aware that many states require additional income tax payments. A partnership that doesn’t pay taxes at the corporate level typically pays it at the individual level.

Self-Employment Tax

Anybody who works for themselves must pay self-employment taxes to the IRS, which uses this money to fund Medicare and social security for the individual. The tax is 15.3 percent and is applied to the first $106,800 of a person’s income. Independent contractors, sole proprietors, and members of partnerships are all examples of people considered to be self-employed by the federal government and are therefore required to pay self-employment taxes.

Employment Taxes

Businesses are required to pay employment taxes to fund Medicare and Social Security for their employees. The business owner provides half the cost of these programs themselves, while the other half is taken out of the employees’ pay. States also require employment taxes to fund compensation insurance and unemployment insurance. Businesses can pay these taxes electronically, through checks or cash.

Excise Tax

Many, but not all, businesses must pay federal excise taxes. Whether it is necessary depends on several factors, including the type of business, the products manufactured or sold, the equipment used, and the services they receive payment for. There are excise taxes imposed for air transportation, communications, environmental impact, and the retail sale of vehicles.