Taxes are a crucial aspect of running a business, with different types affecting various aspects of a company’s finances. Understanding these tax types can help businesses prepare for their financial obligations, maximize deductions, and improve overall compliance. Here’s a breakdown of the main types of business taxes every entrepreneur should know about.

1. Income Tax

Income tax is a federal and state tax on a business's net income or profit, essentially the revenue left after expenses are deducted. For most businesses, this is calculated annually. The exact rate and method for determining income tax vary depending on the business structure:

• Sole Proprietorships: Income is reported on the individual owner’s tax return.

• Partnerships: Income passes through to partners, who report it on their individual returns.

• Corporations: Subject to corporate tax rates at both federal and state levels.

• LLCs: Generally treated as pass-through entities, meaning income is reported on individual members' tax returns unless the LLC elects corporate status.

Tip: Keep detailed records of all income and expenses, and consult with a CPA for any deductions or credits that may apply.

2. Self-Employment Tax

For self-employed individuals, including sole proprietors and partners, self-employment tax is an essential consideration. This tax contributes to Social Security and Medicare, similar to payroll taxes but paid by individuals instead of employers.

The self-employment tax rate is 15.3%, with 12.4% allocated to Social Security and 2.9% to Medicare. The IRS requires quarterly payments of this tax to avoid penalties at tax time.

Tip: Use IRS Form 1040-ES to calculate estimated tax payments throughout the year, ensuring you’re not hit with a large bill come April.

3. Payroll Taxes

If a business has employees, payroll taxes become an ongoing obligation. This includes:

• Social Security and Medicare Taxes: These are shared between employer and employee. Currently, Social Security is 6.2% from each, and Medicare is 1.45% from each.

• Federal Unemployment Tax Act (FUTA): Employers pay this tax to fund unemployment benefits for workers who lose their jobs.

• State Unemployment Taxes: Rates vary by state and depend on the business’s history of layoffs and unemployment claims.

Tip: Automate payroll tax withholdings through payroll software or consult a payroll provider to manage calculations and timely payments.

4. Sales Tax

Sales tax is imposed on the sale of goods and services and is generally collected by the business from the customer. Each state, and sometimes local jurisdictions, determines the rate and which products or services are taxable.

• Nexus: Businesses are only required to collect sales tax in states where they have a physical presence or nexus.

• Exemptions: Certain products or services may be exempt, depending on state law, such as groceries or prescription drugs.

Tip: Research the states where you operate to understand the specific rates and filing requirements. Many states require sales tax filings monthly or quarterly.

5. Property Tax

Businesses that own real estate or tangible personal property (machinery, equipment) are typically subject to property taxes. These taxes are assessed by local or county tax authorities and are based on the value of the property.

Tip: Property tax varies significantly by location. Be sure to review your local county assessor's valuation and challenge any overestimations that could increase your tax burden.

6. Excise Taxes

Excise taxes are imposed on specific goods or services like fuel, alcohol, tobacco, and luxury items. This tax is usually built into the price, meaning the customer indirectly pays for it.

• Examples: Gasoline taxes to fund transportation projects, or taxes on airline tickets and communications services.

Tip: If your business deals in taxable goods like fuel or alcohol, be aware of any excise tax requirements, which may include additional filings beyond standard sales tax reports.

Conclusion

Navigating business taxes is complex, but understanding the different types of taxes can help you avoid surprises and maximize savings. At CPA Attorney, we specialize in helping businesses in Las Vegas, Nevada, navigate their tax responsibilities and uncover opportunities for deductions and credits that can ease their financial load.

If you’re looking for guidance on how to manage your business taxes effectively, reach out to CPA Attorney today! Call us at 702-852-2577 to schedule a consultation and start securing your business’s financial future.