| Federal/State/Local Tax | | | | Reporting must be done every financial quarter. |
| FEDERAL TAXES | | | | Money deposits of payroll taxes must be done |
| Most importantly, get a Federal Employer | | | | every month or every other week, depending on |
| Identification Number from the IRS. Assuming | | | | the size of your payroll contributions. For the first |
| that you are not planning on operating a sole | | | | year of your business, deposits will be monthly. |
| proprietorship without employees, you need to | | | | After that, the IRS will tell you how often you |
| send the IRS information about your business. | | | | must deposit the withheld payroll taxes. |
| Use IRS form SS-4. Do this just after you | | | | |
| create your business entity. (Banks, customers, | | | | 3. Excise Taxes on Businesses and How to Pay |
| suppliers, etc. may ask you for this number so | | | | Them: Federal excise taxes are imposed on the |
| you really should get one as soon as possible.) | | | | sale or use of certain items of property or certain |
| Apart from that, some pretty good free | | | | transactions and on certain occupations. If your |
| information can be obtained at the IRS website. | | | | business involves firearms, alcohol, motor fuel, |
| They have publications for businesses which can | | | | trucks, or gambling you really need to look into |
| be downloaded for free (everybody loves free!). | | | | the excise taxes. Depending on the type of |
| To get to the IRS website offering free business | | | | business you operate, your business may have to |
| information | | | | pay excise taxes. IRS Form 720 lists the broad |
| | | | | categories that this tax applies to. Form 720 |
| Here are the basic federal taxes that your | | | | needs to be filed every fiscal quarter. If your |
| business may have to pay, depending on the | | | | business uses heavy trucks, buses, or trailers, on |
| state you live in and the type of business you | | | | public highways, then your business may have to |
| operate. | | | | pay a special excise tax levied on such vehicles |
| | | | | and IRS Form 2290 would have to be filed. |
| 1. Income Taxes on the Business and the Owner | | | | |
| and How to Pay Them: Once a year, businesses | | | | STATE TAXES |
| will have to report to the IRS and (probably) the | | | | Depending on your home state's laws, you will |
| State Tax Agency the amount of money earned | | | | need to file sales tax, employee withholding tax, |
| by the business in the prior year. The actual | | | | income tax, and possibly others. The best way to |
| amount of federal income tax that your business | | | | find out exactly what you will need to file is to |
| pays each year is determined partly by the type | | | | either contact a local accountant, or, if you want |
| of legal entity you have created. Therefore, the | | | | to save some money (and that is why you are |
| different legal entities file different forms with | | | | here after all), contact the state yourself. The |
| the IRS. | | | | state tax departments often have guide books to |
| | | | | help small businesses (and large businesses) |
| Sole proprietors file IRS form Schedule C along | | | | comply with the tax code. |
| with the owner's regular 1040. If your sole | | | | |
| proprietorship business has net income, then you | | | | Your state will almost certainly require your |
| must also file Schedule SE along with the regular | | | | business to have an employer identification |
| 1040 to determine the Social Security and FICA | | | | number issued by the state. Your state |
| taxes you must pay. | | | | employment development office can provide you |
| | | | | with more information and the proper forms. (Do |
| Partnerships, Limited Partnerships and Limited | | | | not confuse the number assigned to your |
| Liability Companies file IRS form 1065 to report | | | | corporation, partnership, or LLC by the Secretary |
| partnership income (but remember that you will | | | | of State with the Employer Identification Number. |
| have to report your share of the partnership's | | | | These are two different numbers, issued by two |
| income on your 1040 return as well). Just like for | | | | different state agencies.) |
| a sole proprietorship, please note that as a | | | | |
| partner in a general partnership you are required | | | | Again, just like federal taxes, there are legal |
| to file Form Schedule SE. | | | | penalties for not paying state taxes and these |
| | | | | penalties include criminal penalties. |
| A C-Corporation files 1120 or 1120-A. | | | | |
| Remember that the C-Corporation must pay | | | | LOCAL TAXES |
| income taxes on its profits and the stockholders | | | | Now you definitely need to consult your local |
| must also pay taxes on the dividends they | | | | authorities. There really is no way to guess what |
| receive (this is the infamous ``double taxation of | | | | possible local taxes, fees, etc. you may be |
| C-Corporations). So the corporation's profits will be | | | | subject to |
| taxed as it receives income, and then taxed again | | | | |
| when those profits are distributed to the | | | | But remember that there are multiple levels of |
| shareholders. Moreover, if you are an employee | | | | local taxation. There may be a county |
| of the corporation as well as an owner, you need | | | | assessment on assets and a city or municipal tax |
| to pay income taxes on the salary paid to you. | | | | on income. |
| | | | | |
| S-Corporations file IRS form 1102-S. | | | | State Taxes |
| | | | | In addition to business taxes required by the |
| Note that as far as the IRS is concerned, you | | | | federal government, there are some state and |
| and your business are two separate entities, and | | | | local taxes. Each state and locality has its own tax |
| both had better have their taxes in order! | | | | laws. The most common types of taxes |
| | | | | requirements for small and medium business |
| 2. Income Taxes on Employees and How to Pay | | | | include: |
| Them: | | | | |
| Withholding (Income) Tax: If you have | | | | Tax Permit: In most states, business owners are |
| employees, you have the headache of withholding | | | | required to register their business with a state tax |
| taxes from their paychecks and periodically | | | | agency and apply for certain tax permits. For |
| sending that money to the federal government. | | | | example, in order to collect sales tax from |
| Each time you hire an employee, that new | | | | customers, many states require businesses to |
| employee needs to fill out an IRS Form W-4, | | | | apply for a state sales tax permit. |
| listing the exemptions and additional allowances | | | | |
| claimed by the employee. You then use this form | | | | Income Taxes: Nearly every state levies a |
| to withhold the proper amount from the | | | | business or corporate income tax. Tax |
| employees' paychecks, and send that money on | | | | requirement depends on the legal structure of |
| to the federal government. At the end of the | | | | your business. For example, if your business is an |
| year, you must give each employee an IRS Form | | | | LLC, the LLC gets taxed separate from the |
| W-2. The W-2 will simply list the amounts withheld | | | | owners, while sole proprietors report their |
| from the employees' paychecks and sent to the | | | | personal and business income taxes using the |
| federal government. There must be a separate | | | | same form. |
| copy of the W-2 for each of the taxing | | | | |
| jurisdictions (federal, state, and local governments) | | | | Employment Taxes: In addition to federal |
| plus one more for the employees' records. You | | | | employment taxes, business owners with |
| will also have to send a copy of the employees' | | | | employees are also responsible for paying certain |
| W-2s to the IRS yourself. Also, if your business | | | | taxes required by the state. All states require |
| involves more than $20/month in ``tips" to | | | | payment of state workers' compensation |
| employees, your employees must report such | | | | insurance and unemployment insurance taxes. Five |
| tips to your business. Your business then has to | | | | states (California, Hawaii, New Jersey, New York, |
| withhold the appropriate amounts from the | | | | and Rhode Island) and Puerto Rico require |
| employees' wages. | | | | businesses to pay for temporary disability |
| | | | | insurance. |
| Social Security/Medicare/Unemployment | | | | |
| Taxes: Social Security, Medicare, and Federal | | | | You should file |
| Unemployment taxes will all have to be paid if you | | | | - An annual return if you owe $3,000 or less in |
| have employees. Social Security and Medicare | | | | tax during an annual filing period. |
| taxes must be withheld from the employees | | | | - The Department will notify you by mail that we |
| wages and your business will have to match the | | | | switched you to an annual filer. We mail letters, |
| employees' ``contributions" to these federal | | | | the Form TR-100 Sales and Compensating Use |
| programs. These taxes are paid together and | | | | Tax Annual Filing Opportunity, in March. |
| appear on the annual tax return for the business. | | | | - If you would like to continue filing a quarterly |
| And just like the income tax, if your business | | | | return instead of an annual return, you must |
| involves more than $20/month in ``tips" to | | | | notify the Department. |
| employees, you need to account for these tips as | | | | |
| part of these payroll taxes. | | | | A quarterly return if |
| | | | | - You have not been notified that you are an |
| If you have employees during the course of 20 | | | | annual filer |
| weeks of the year or you paid your employees a | | | | - And your taxable receipts, purchases subject to |
| total of more than $1,500 in a year, you probably | | | | tax, rents and amusement charges are less than |
| have to pay the federal unemployment tax. The | | | | $300,000 during the previous quarter. |
| federal unemployment tax, unlike Social Security | | | | (Most vendors file quarterly when they first |
| and Medicare, comes solely out of your own | | | | register to collect sales tax.) |
| pocket, with no contribution from the employee. | | | | |
| Note that if your business' federal unemployment | | | | A monthly (part-quarterly) return beginning with |
| tax burden exceeds $100 per quarter for two | | | | the first month of the next sales tax quarter if |
| quarters, then you need to make monthly | | | | you file an annual or quarterly sales tax return |
| deposits of the money owed. Form 940 is used | | | | and: |
| annually for a business to report its Federal | | | | - Your combined total of taxable receipts, |
| Unemployment Tax due. Please note that IRS | | | | purchases subject to tax, rents and amusement |
| form 940EZ can be used by a business if your | | | | charges is $300,000 or more in a quarter, or |
| business (i) has employees in only one state, (ii) | | | | - You are a distributor as defined under Article |
| pays all state taxes sums due by the 940EZ | | | | 12-A of the Tax Law and you have sold a total |
| date, (iii) the Federal Unemployment Taxes paid | | | | of 100,000 gallons or more of motor fuel or diesel |
| are also taxable by the state governments. | | | | motor fuel (taxable or nontaxable) |
| | | | | |
| To Pay Federal Taxes on Employees: | | | | State Sales and Use Tax is imposed on all retail |
| Paying federal business taxes requires two | | | | sales, leases and rentals of most goods, as well |
| actions: (1) EACH QUARTER, using IRS Form | | | | as taxable services. |
| 941 , report the income and payroll taxes | | | | |
| withheld from the employees' paychecks and, (2) | | | | Texas cities, counties, transit authorities and |
| EITHER MONTHLY OR SEMI-WEEKLY deposit the | | | | special purpose districts have the option of |
| funds you have withheld by sending a check to a | | | | imposing an additional local sales tax for a |
| bank authorized to receive money on behalf of | | | | combined total of state and local taxes of 8 1 |
| the IRS. | | | | 4% (. |
| | | | | |