7 Types of Business Taxes You Need to Know About
If you run a business, you know that taxes are a big part of your expenses. But do you know what types of business taxes you have to pay and how they affect your bottom line? In this article, we will explain the different kinds of business taxes and how they apply to different business structures and activities. We will also give you some tips on how to reduce your tax burden and comply with the tax laws.
What are business taxes?
Business taxes are the taxes that businesses have to pay to the government based on their income, sales, property, payroll, and other factors. Business taxes can be federal, state, or local, depending on where the business operates and what kind of transactions it engages in. Some business taxes are paid by the business itself, while others are passed on to the customers or employees.
The main types of business taxes
– Income tax: This is the tax that businesses pay on their net income, which is the difference between their revenue and expenses. The income tax rate and rules vary depending on the type of business entity and the level of income. For example, sole proprietorships, partnerships, and S corporations are considered pass-through entities, which means that their income is taxed at the individual level of the owners or shareholders. On the other hand, C corporations are subject to corporate income tax, which is a separate tax from the individual income tax of the owners or shareholders.
– Sales tax: This is the tax that businesses collect from their customers when they sell goods or services. The sales tax rate and rules vary by state and locality, and some products and services are exempt from sales tax. Businesses have to register with the state and local authorities to collect and remit sales tax, and they have to keep track of their sales and tax records.
– Property tax: This is the tax that businesses pay on their real estate and personal property, such as land, buildings, equipment, vehicles, furniture, etc. The property tax rate and rules vary by state and locality, and some property may be eligible for exemptions or deductions. Businesses have to report their property value and pay property tax to the county or city where the property is located.
– Payroll tax: This is the tax that businesses withhold from their employees’ wages and pay to the government on behalf of their employees. The payroll tax consists of two parts: Social Security and Medicare taxes, which are also known as FICA taxes. The Social Security tax is 12.4% of the employee’s wages up to a certain limit ($142,800 in 2021), and the Medicare tax is 2.9% of the employee’s wages with no limit. The employer and the employee each pay half of these taxes (6.2% for Social Security and 1.45% for Medicare). In addition, some employers have to pay an extra 0.9% Medicare surtax on wages above $200,000 for single filers or $250,000 for married filers. Employers also have to pay federal unemployment tax (FUTA) at 6% of the first $7,000 of each employee’s wages per year, but they can claim a credit for paying state unemployment tax (SUTA).
– Self-employment tax: This is the tax that self-employed individuals pay on their net earnings from self-employment. The self-employment tax is similar to the payroll tax, except that self-employed individuals have to pay both the employer’s and the employee’s share of Social Security and Medicare taxes (12.4% + 2.9% = 15.3%). However, self-employed individuals can deduct half of their self-employment tax from their taxable income.
– Excise tax: This is the tax that businesses pay on certain products or activities that are subject to special taxation by the government. Examples of excise taxes include gasoline tax, tobacco tax, alcohol tax, air transportation tax, environmental tax, etc. The excise tax rate and rules vary by product or activity and by federal or state authority.
– Franchise tax: This is the tax that some states charge businesses for the privilege of doing business in their state. The franchise tax is not based on income but on other factors such as net worth, capital stock, gross receipts, etc. The franchise tax rate and rules vary by state and by type of business entity.
How to reduce your business taxes
Business taxes can be a significant expense for any business owner, but there are some ways to reduce your tax liability legally and ethically. Here are some tips on how to lower your business taxes:
– Choose the right business entity: The type of business entity you choose can affect how much income tax you pay and how you file your tax returns. For example, if you operate as a sole proprietorship or a partnership, you may pay more income tax than if you operate as an S corporation or a C corporation. However, if you operate as a C corporation, you may face double taxation on your income and dividends. Therefore, you should consult a tax professional to determine the best business entity for your situation and goals.
– Keep accurate and organized records: Keeping track of your income and expenses is essential for filing your tax returns and claiming deductions. You should use a reliable accounting system or software to record your transactions and generate reports. You should also keep receipts, invoices, bank statements, and other documents that support your income and expenses. You should store your records for at least three years in case of an audit by the IRS or the state.
– Claim all eligible deductions: Deductions are expenses that you can subtract from your income to reduce your taxable income. There are many deductions that you can claim as a business owner, such as home office expenses, vehicle expenses, travel expenses, advertising expenses, depreciation expenses, etc. However, you have to meet certain requirements and limitations to claim these deductions. For example, you have to use your home office exclusively and regularly for business purposes to deduct a portion of your rent, utilities, insurance, etc. You should consult a tax professional or refer to the IRS publications to learn more about the rules and regulations for each deduction.
– Take advantage of tax credits: Tax credits are benefits that you can subtract from your tax liability to reduce the amount of tax you owe. There are many tax credits that you can qualify for as a business owner, such as research and development credit, small business health care credit, work opportunity credit, energy efficiency credit, etc. However, you have to meet certain criteria and documentation to claim these credits. You should consult a tax professional or refer to the IRS publications to learn more about the eligibility and calculation of each credit.
– Plan ahead and pay on time: Planning ahead and paying your taxes on time can help you avoid penalties and interest charges that can increase your tax burden. You should estimate your tax liability for the year and make quarterly estimated tax payments to the IRS and the state if you expect to owe more than a certain amount ($1,000 for federal and $500 for state in 2021). You should also file your tax returns by the due date (April 15 for federal and state in 2021) or request an extension if you need more time. However, an extension does not extend the time to pay your taxes, so you should still pay what you owe by the original deadline.
How Different Types of Business Taxes Affect Global Demand
Business taxes are fees that businesses pay to the government for various purposes. There are many different types of business taxes, but the most common are income tax, estimated tax, self-employment tax, employment tax, and sales tax. Some businesses may also pay property tax and excise tax depending on their location and industry.
Different types of business taxes can have different effects on the global demand for goods and services produced by businesses. In this blog post, we will look at two types of business taxes and how they affect the global demand in this industry.
Income Tax and Global Demand
Income tax is a tax that businesses pay on their net income or profit. The rate of income tax varies depending on the form of the business and the country where it operates. For example, in the United States, corporations pay a flat rate of 21% on their taxable income, while partnerships and sole proprietorships pay income tax at the individual level according to their marginal tax rates.
Income tax can affect the global demand for goods and services in two ways. First, income tax can affect the supply side of the market by changing the incentives for businesses to invest, produce, and compete. Higher income tax rates can reduce the after-tax profits of businesses, which can discourage them from expanding their production capacity, innovating new products, or entering new markets. Lower income tax rates can increase the after-tax profits of businesses, which can encourage them to invest more in their operations, improve their products, or explore new opportunities.
Second, income tax can affect the demand side of the market by changing the disposable income of consumers. Higher income tax rates can reduce the disposable income of consumers, which can lower their purchasing power and demand for goods and services. Lower income tax rates can increase the disposable income of consumers, which can raise their purchasing power and demand for goods and services.
Therefore, income tax can have a positive or negative effect on the global demand for goods and services depending on its impact on the supply and demand sides of the market.
Sales Tax and Global Demand
Sales tax is a tax that businesses collect from customers on behalf of the government when they sell taxable goods or services. The rate of sales tax varies depending on the type of good or service and the location where it is sold. For example, in New York State, the general sales tax rate is 4%, but some counties and cities impose additional local sales taxes that can range from 3% to 4.875%.
Sales tax can affect the global demand for goods and services by changing the price that customers pay for them. Higher sales tax rates can increase the price of goods and services, which can lower the quantity demanded by customers. Lower sales tax rates can decrease the price of goods and services, which can increase the quantity demanded by customers.
Therefore, sales tax can have a negative or positive effect on the global demand for goods and services depending on its impact on the price and quantity demanded by customers.
Business taxes are an important factor that can influence the global demand for goods and services produced by businesses. Different types of business taxes can have different effects on the supply and demand sides of the market, which can result in positive or negative outcomes for businesses and customers. Businesses should be aware of the types and rates of business taxes that apply to them and their customers in order to make informed decisions about their production and pricing strategies.
References:
https://masterplantaxes.com/2022/01/24/what-are-the-different-types-of-business-taxes/
https://www.thebalancemoney.com/all-the-taxes-your-business-must-pay-399045
https://www.investopedia.com/terms/c/corporatetax.asp
https://www.investopedia.com/terms/i/incometax.asp
https://www.tax.ny.gov/bus/st/rates.htm
https://www.investopedia.com/terms/s/salestax.asp
https://www.irs.gov/businesses/small-businesses-self-employed/business-taxes
https://www.sba.gov/business-guide/manage-your-business/pay-taxes
