A Guide to Types of Business Taxes and Obligations

As a business owner, you're likely aware that taxes are a necessary part of doing business, but did you know that there are several types of business taxes and obligations to navigate?

One of the most common types of business taxes is income tax, which is calculated based on a business's net income. This can be a straightforward process, but it's essential to keep accurate records to ensure you're paying the correct amount.

Income tax is typically paid quarterly, with four due dates throughout the year. This can help you spread out the financial burden and avoid any last-minute rushes.

Businesses with employees also have to contend with payroll taxes, which cover Social Security and Medicare taxes. These taxes are usually withheld from employee paychecks and are typically matched by the employer.

Business taxes can be overwhelming, but understanding the different types can help you navigate the process more efficiently. There are several types of business taxes, including income tax, payroll tax, and sales tax.

Income tax is a crucial tax type, as it's based on a business's profits and is typically paid annually. A business's tax liability is determined by its tax filing status, which can be sole proprietorship, partnership, or corporation.

Payroll tax, on the other hand, is a tax on wages paid to employees. It's typically withheld from employee paychecks and is used to fund social security and unemployment benefits.

The IRS mandates 5 basic types of business taxes, but not all businesses pay all of them.

Businesses are required by law to file an income tax return every year, and the structure of your business determines what forms you use.

The federal income tax rate can be as high as 37%, and higher incomes may also be subject to a 0.9% surtax.

You'll want to reduce your business's net profit to minimize income taxes, and consider purchasing a major piece of equipment or asking a customer to postpone a payment to the following year.

Businesses pay state and local income taxes in addition to federal income taxes, if applicable.

To lower your business's taxable income, look into qualified contributions to a retirement account, the standard deduction, or itemized deductions.

Sales taxes can be a complex and time-consuming aspect of running a business, with 45 states and DC charging sales tax, and 38 of those also having local sales taxes. This can result in over 15,000 sales tax jurisdictions, with 14,000+ law changes every year.

Some states, like California, require businesses to register for a seller's permit even if they don't sell taxable items, if their sales exceed $100,000 per year. This can be a challenge for businesses to keep track of.

You'll need to charge your clients sales tax on their purchases once you have your sales tax permit. Then, you'll need to remit that money to the state, either monthly, quarterly, or annually.

There are apps, like TaxJar, that can help simplify the process by automatically tracking sales tax laws and integrating with payment processors and e-commerce tools. These apps can charge customers the right amount of sales tax, file the necessary reports, and remit sales tax to the state(s).

Some services, like commercial building maintenance, parking lot rentals, or meals for renters, may be subject to sales taxes. You'll need to consult with your tax preparer to determine what the requirements are in your area and if they apply to your business.

Here's a breakdown of some common services that may be subject to sales taxes:

Property taxes are usually charged by your local government, like your city or county, and are based on the physical things you own and use for business.

You'll need to register your property with the state or local government after buying it, and then you'll receive information about any changes in the assessed value of the property.

The taxes due are based on the assessed value of the property, not its fair market value.

You may be surprised to know that even small things like laptops, supplies, and handheld tools can be eligible for property taxes if you use them for business.

Property tax audits are common, so be sure to keep those receipts!

The payment deadlines for property taxes could be anywhere on the calendar, so mark your calendars accordingly.

Use tax is due when the goods are first used in Washington. This is an important distinction from retail sales tax, which is based on the location of the sale.

The value of the goods, including any freight, delivery, or shipping charges paid to the seller, is used to calculate the use tax. This means you'll need to keep track of these costs when determining your use tax liability.

Use tax rates are the same as the retail sales tax rates. This consistency can make it easier to understand and calculate your use tax obligations.

Here are some key facts to keep in mind when it comes to use tax rates:

Local B&O taxes are imposed by many Washington cities, but the Department of Revenue doesn't administer or collect them. You'll need to check with the city or town for more information.

The tax is separate from the state B&O tax, which means you'll need to consider both when calculating your total tax liability.

Local B&O tax rates and requirements vary by city, so it's essential to research the specific tax and licensing information for your area.

Businesses in Washington state are subject to the state B&O tax, which applies to most business types, including corporations, LLCs, partnerships, and sole proprietors.

Transient Occupancy is a tax that applies to short-term rentals, typically 30 days or fewer. This tax is not limited to hotels, inns, or hostels, but also includes rental homes, cabins, boarding houses, and rented guest rooms.

If you're a house hacker, vacation rental business, or Airbnb host, you'll want to check with your tax preparer about this tax.

Cloud computing can be a game-changer for businesses, but have you considered the tax implications? Business personal property taxes can apply to cloud-based assets.

Some states may require you to pay taxes on cloud-based assets, even if they're fully depreciated. This is because they're still considered business personal property.

Cloud computing often involves using software and hardware that can be considered business personal property. For example, computer equipment and machinery are typically subject to business personal property taxes.

Here are some examples of cloud-based assets that may be subject to business personal property taxes:

Investing in rental real estate is generally considered passive income, which is exempt from self-employment tax.

You're required to report self-employed income if you earn more than $400 from business activities, and your income will be taxed at the self-employed tax rate, which is 15.3% for 2023.

This rate is made up of 12.4% for Social Security and 2.9% for Medicare.

If you provide substantial additional services or are a real estate professional, you may qualify for self-employment taxes, which means you'll be responsible for paying both the employee and employer portion of Social Security and Medicare taxes.

Personal property tax is a thing, and it's not just for real estate. It applies to personal property used in a business, including equipment, furniture, and supplies.

The tax rate for real and personal property is the same. This means you don't have to worry about different rates for different types of property.

You'll need to complete a personal property tax listing form by April 30 each year. This form helps the assessor value your personal property for taxes due the following year.

If you've used personal property in a business or have taxable personal property, you'll receive a form from the county assessor in January. If you don't receive a form, contact your local county assessor's office to ask questions or get more information.

County assessors and treasurers are in charge of levying and collecting property tax. They're the ones you'll need to contact if you have any questions or concerns about your personal property tax.

Estimated taxes are a crucial part of your tax obligations, especially if you're a business owner. You're required to pay estimated taxes quarterly if you expect to owe more than $500.

The due dates for estimated taxes vary, but you can set up reminders for the following dates: January 17, April 18, June 15, September 15, and January 16.

If you structured your rental property business as a C corporation and expect to owe more than $500, you must pay estimated taxes. This is a requirement, not a suggestion.

Other business entities, such as sole proprietorships or partnerships, must also pay estimated taxes if the taxpayer is likely to owe more than $500 on their individual return.

If the due date falls on a holiday or weekend, file your taxes by the following business day to avoid any penalties or late fees.

Here are the estimated tax due dates for 2023 and 2024:

You earn more than $400 from business activities, you're required to report self-employed income, which will be taxed at the self-employed tax rate of 15.3% for 2023.

Self-employment tax is paid on your business's profit after all business expenses are paid, and it's used to fund Social Security and Medicare.

The tax rate for self-employment tax is 12.4% for Social Security taxes on the first $160,200 of taxable income, and 2.9% for Medicare taxes on all taxable income.

You can't use the standard or itemized deductions to reduce your taxable income subject to self-employment taxes.

Filing your self-employment taxes requires filling out Form SE and attaching it to your individual tax return (Form 1040).

As an S corporation shareholder, you'll only pay self-employment taxes on the wages you pay yourself from the business.

Payroll taxes are a type of tax paid on the wages and salaries of employees, used to fund Social Security and Medicare. Similar to self-employment taxes, they're a requirement for employers.

You'll need to file several forms to report payroll taxes, including Form 940 for federal unemployment tax, Form 941 for income and other taxes withheld, and Form W-2 to show employees their total wages earned.

Form W-3 is also filed with the Social Security Administration, summarizing all W-2s issued by an employer. Copies of all W-2s are included with the W-3.

The tax rate for payroll taxes is 15.3%, with 12.4% going towards Social Security and 2.9% towards Medicare. Employers pay half of these taxes, while employees pay the other half.

Many employers pass the 7.65% payroll taxes they're responsible for paying to their employees as part of their overall compensation package.

Special Taxes are a necessary part of doing business, and there are several types to be aware of.

The federal government imposes a tax on certain types of businesses, such as those in the entertainment industry.

The Foreign Account Tax Compliance Act (FATCA) tax is a special tax on foreign financial institutions that have U.S. clients.

This tax is designed to prevent tax evasion and ensure compliance with U.S. tax laws.

The IRS also imposes a tax on certain types of businesses, such as those that participate in the Affordable Care Act.

This tax is used to fund the healthcare law and is typically paid by businesses with 50 or more full-time employees.