5 Types Of Taxes That You’ll Need To Pay As A Small Business

All businesses, whether small or large, have to pay different types of taxes. Some of these taxes are straightforward to comprehend.

However, some of them are difficult and you might find yourself in a situation where you have forgotten about them.

There are different varieties of business taxes, grouped into local, state, and federal taxes.

In addition, different businesses pay different taxes depending on the activities they are involved in and how they operate their businesses.

If you own a small business, you need to ensure that you know all the taxes that you are supposed to pay. Your business activities will influence the taxes that you pay. 

Here are some types of taxes you will need to pay if you own a small business;

Payroll Taxes

Most small businesses have employees. This means that they should pay employment taxes.

Some of the most common employment taxes you should be aware of include FUTA (federal unemployment tax), income tax from your employees’ income, Medicare, and Social Security FICA payments.

You should make sure that you are ready for these taxes. Fortunately, you can easily estimate your tax burden using different applications.

This shows you the payroll and employment taxes you need to be paying to ensure that you are ready and prepared.

Medicare and Social Security taxes require you to pay half of the money and withhold the other half from the salaries of your employees.

You can also consult an accountant to discuss the other taxes and ensure that you have paid everything as required.

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Income Tax

Before starting your business, you need to understand that you will be required to file income tax, whether you are making a profit or not.

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However, this type of tax depends on the kind of business you are running.

For instance, you can pay your income tax separately for your small business or add it to your own income tax returns.

The legal structure of your small business will also determine the kind of forms you will be required to fill out.

It is important to note that even though you will be required to file income tax returns once every year, you will be paying tax for all the income earned throughout the year.

You might be required to make estimates by the government to ensure that you are not far behind what you are supposed to pay.

Estimated Tax

As a general rule of thumb, you are required to pay taxes by making regular payments of your estimated taxes every year.

You are responsible for paying taxes on things like dividends, interest, income, rent, and alimony, among others for your business.

Even if you are not sure about the amount of money you will make in a particular year, you are required to pay taxes in good faith.

It is also important to note that you might end up paying some penalties in case you underestimate your taxes.

Estimated taxes are mostly paid quarterly. Depending on the legal structure of your business, you might find yourself with a smaller threshold compared to someone who is paying as a self-employed person.

State And Local Taxes

Apart from the federal government taxes that you will be required to pay as a small business, you will also be required to pay state and local taxes.

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Just like with federal government taxes, your business’s legal structure will influence the state and local taxes you need to pay.

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In addition, a majority of states in the US require small businesses to make payments towards workers’ compensation and state unemployment insurance.

Other states such as New York, New Jersey, Hawaii, and California require businesses to pay temporary disability insurance.

If your small business operates in different states, you should consult a professional since you might find yourself paying taxes in all the states.

Sales Tax

Sales tax is not a federal government tax, but a local and/or state tax. Different states have different rules that govern how sales tax is collected, charged, and levied. This is tax paid by businesses that sell products or services.

This tax is turned over to the department of revenue in the state you are running your business. To ensure that you are not behind with your sales tax, monitor your transactions effectively.

Some states such as New Hampshire, Montana, Delaware, Alaska, and Hawaii do not charge sales tax on businesses.

Understanding the types of taxes you will need to pay as a small business is important even before you start your business.

Always do some research or consult a professional to ensure that you are on the right side of the law.

Jonathon Spire

Jonathon Spire

Tech Blogger at Jonathon Spire

My diverse background started with my computer science degree, and later progressed to building laptops and accessories. And now, for the last 7 years, I have been a social media marketing specialist and business growth consultant.

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Jonathon Spire

I blog about a range of tech topics.

For the last 7 years I have been a social media marketing specialist and business growth consultant, so I write about those the most.

Full transparency: I do review a lot of services and I try to do it as objectively as possible; I give honest feedback and only promote services I believe truly work (for which I may or may not receive a commission) – if you are a service owner and you think I have made a mistake then please let me know in the comments section.

– Jon