Tax Issues
As the J. K. Lasser Tax Institute says "several governments
are silent partners in your business. The federal government probably
takes the largest share of your profits through taxes, and, depending
on the revenue needs of the state in which you conduct your business,
the state government can also keep an amount of your income through
taxes. Local tax authorities, city or county, may not be too far
behind."
Because your business will probably not be large enough to have
a tax department, you must develop your bookkeeping and accounting
systems in a way that your tax liabilities are calculated, documented
and met. You must also find ways to keep up with the changes in
the tax laws that may affect your business.
Some states also levy taxes on business property and inventory.
Your state will automatically send you the necessary forms when
you register the business.
Listed below are a few of the tax obligations that are placed
on businesses. For more information, contact your IRS office.
TAX OBLIGATIONS PLACED ON BUSINESS
Income Tax
Sole proprietors and corporations are required
to pay income tax to the federal government and, possibly, to
city, county, and state governments as well. A partnership as
an entity pays no income tax, but each partner pays income tax
on his/her share of the income from the partnership.
Employment Taxes
If you have employees, you must withhold
and pay employment taxes, no matter what form of business organization
you use. You must first obtain a federal employer identification
number by filing Form SS-4.
Social Security
FICA must be withheld from the pay of
all employees. The FICA withheld, the employer's FICA contribution,
and the income tax withheld from employee's wages are all reported
to the IRS on Form 941, usually quarterly.
Unemployment Tax
Unemployment taxes are paid to both
the state and the federal government. The IRS gives partial credit
for unemployment taxes paid to the state. You must register your
business with your state bureau of labor. The state then assigns
an identification number and an experience rate. The rate is determined
by how often you and other businesses hire and fire people. The
state will inform you how and when to deposit unemployment taxes
with them.
Federal Unemployment Tax
The FUTA will be smaller than the state tax. One month after the close of your tax year you
file Form 940 with the IRS to show how you calculated the unemployment
tax that is due.
Return to Insurance Page
Information on this page was obtained from:
HOW TO RUN A SMALL BUSINESS
produced by the J. K. Lasser Tax Institute and information from Small Business Development Center - M. Shannon Campbell, Senior Consultant.
Below are links that will give you more information on the above list of business taxes required by the state and federal government.
Full Contents of Subtitle C - Employment Taxes and FICA Cover taxes on employees, employers, general provisions, rates of tax, etc.
Unemployment Compensation Law Materials Describes in detail how the Federal Unemployment Tax Act works.
Occupational Safety & Health Administration Home Page Gives links to OSHA training and registration, technical information, documents and standards.
Small Business Home Page
This Web page was originally created by Vicki Thompson and was last updated by Joseph Klein on 11/15/2000.