Tax Laws For Small Business Owners To Avoid IRS Troubles

Whether you’re just starting off with your business or are planning to scale it, you need to have an understanding of federal and state tax laws. Many entrepreneurs and business owners unknowingly get into tax trouble because they don’t account for the different taxes on their business and employees. The goal is to minimize unnecessary taxes so you can keep more of your hard-earned money.

Note: Before we get to these tax laws discussed below, it is important that you understand that all these taxes are only applicable if you have an Employee Identification Number (EIN). This is not tax advice, consult a tax advisor for more information.

Income Tax

Regardless of the size of the company, paying income tax is mandatory for all businesses. It is levied as a percentage of the total earnings of a business.

The income tax rate that you’ll need to pay would depend on federal laws, as well as, the state in which you operate your business. Income tax generally also depends on the type of company. For example, if you have a partnership firm, both partners will be paying income taxes individually.

Employment Tax

Under federal tax laws, there are generally two types of employment taxes that you’ll need to pay.

It depends on your workforce and the compensations you pay to them. Per tax experts, “you need IRS forms 940 and 941” when filing for employment tax. Form 940 is filed to report your Federal Unemployment Tax Act (FUTA) details. Form 941 is used to report quarterly taxes paid for the employees.

Property Tax

Another mandatory tax that you may need to pay as a business owner is for your property. Federal and state governments levy taxes on personal and realty properties that a business uses.

Every state has its different laws on property taxes. Some collect taxes on vehicles, equipment, and machinery, while others only collect taxes on the real estate property. Moreover, the tax you pay is calculated as a percentage of appraisal in the value of your property, particularly for real estate properties.

Sales Tax

Most states collect a sales tax on the sales of goods and services. Like other tax laws, this one also varies from state to state. Some states also collect taxes on the use of certain services and products.

For example, if you are using a third-party vehicle to run company errands, you may need to pay use tax. But, then again, it would depend on your state laws, precisely.

Following these tax norms, you can rest assured that you are well ahead of the IRS’s radar. However, we still strongly recommend that you consult with your tax attorney before filing for your taxes with the IRS. They’ll be far better equipped to guide you according to your business needs.

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