When it comes to filing taxes, it is easy to become overwhelmed with the myriad of federal laws and procedures. This is especially true when you are a business owner. In order to file successfully, there will be certain things you will be expected to understand. Often, business owners are given a wealth of incentives that are not available to other taxpayers, and if you have an in-depth understanding of your taxes, these incentives can be quite lucrative. The following information will explain the basic tenets of business taxation, and how they relate to the financial health of your company.
Filing Quarterly Taxes
As a business owner or sole proprietor, you may be required to pay quarterly taxes. If your business is relatively small, or you have not paid any wages to employees, it should be fairly easy to file your quarterly taxes. No special forms will be required to file, and business owners should also remember they will still be required to file annual income taxes in March. You should also have enough money saved to cover your income tax bill, which will cover things such as Social Security and Medicare. Simply use Form 1040-ES to file quarterly taxes, and be sure to file before April in order to avoid costly penalties and interest rates.
As your small business expands, you will undoubtedly be charged with the task of hiring new employees. This can be an exciting time, but as a sole proprietor, there will be additional federal tax obligations you will have to fulfill, and payroll taxes are among these obligations. Payroll taxes withheld from an employee’s wages are known as withholding taxes. Since you, the employer, will be responsible for sending them to various government agencies and other tax-based obligations.
Federal Insurance Contributions Act
The Federal Insurance Contributions Act, or FICA as it is commonly called, provides workers with a federal system of disability, old-age, survivor, and hospital insurance. All of these, with the exception of hospital insurance (Medicare), are covered using social security taxes. Social Security taxes cover the following:
- Family Benefits
Employers will be responsible for withholding Social Security and Medicare taxes from an employee’s check and paying a matching amount. Each of these taxes have a different rate and there is a wage base limit for Social Security Taxes, meaning you will only have to match up to a certain amount.
In the event that an employee loses his or her job, the Federal Unemployment Tax Act (FUTA) will provide certain benefits. The vast majority of business owners will be required to pay both a federal and state unemployment tax. The employer must pay FUTA tax since it is not withheld from wages, but you can usually claim a credit for any taxes you pay into state unemployment funds. This credit amount cannot exceed 5.4 percent of your taxable wages. If you are entitled to the maximum 5.4 percent, your FUTA tax rate will drop to 0.8 percent after the credit.
Enlist a Tax Professional
Business taxes can be complex at times, and for many business owners, it may be wise to hire a payroll service. This can be especially helpful if your payroll varies from pay period to pay period, or if you hire hourly or commission-earning employees. This can help you avoid making costly mistakes, such as failing to remit payroll taxes on time. These companies can easily calculate the amount of each paycheck and each employee’s tax obligations. The checks are usually printed, and the company will compile a detailed payroll report for your records. In short, there are many different aspects of business taxation. If you still have difficulty comprehending these aspects, an accountant can provide you with additional guidance and information.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.