Does your company own real estate? Then get ready to pay property tax.

The total amount you’ll owe depends on how much the property is worth. Every year, your company will get information about the changes in the property’s assessed value and the amount of taxes you owe.

Once you receive the property assessment, you’ll also get a tax bill. Make sure that your company deducts a portion of the property taxes as a business expense.

Property tax is just one of the types of taxes that your company will face. If you don’t want to make a mistake and wind up in trouble with the IRS, you’ll want to check out this guide.

What other taxes are you responsible for as a business owner? Read on to find out.

Paying Taxes on Business Income

Employees are aware that they have to pay federal and sometimes state income taxes. But what about business owners?

Are they exempt from this tax? Unfortunately no. You will have to file income taxes as a business owner unless you’re a partnership. If your company is a partnership, you’ll file an annual information return instead.

In addition to the business’s income tax, you’ll also have to complete an individual income tax return. To complete your tax return, you’ll need to use an IRS form 1040.

Income taxes are due every year, without exception. Make sure you file timely, to avoid late penalties.

Self-Employment Taxes

What types of taxes do you owe as an individual? It’ll depend on the type of company you’re running. 

Do you have a partnership, LLC, or sole proprietorship? Then you’re going to have to pay self-employment taxes.

Self-employment taxes help cover things such as Medicare and Social Security. The amount of your employment taxes will be based on the entire net income of the business.

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Unlike gross income, net income considers all of your business expenses. That’s why you must be keeping a good record of everything you buy for the company.

You should be keeping receipts for every purchase you make so that you can write them off when tax time comes. If you can’t prove what your business expenses are, you’ll wind up overpaying on self-employment taxes.

If there aren’t any net earnings for the year, you won’t have to pay any self-employment tax. However, you also won’t get any Medicare or Social Security credits for that year. You can calculate your employment taxes and then add that amount due to your personal tax return.

When You’re Exempt from Self Employment Tax

You can skip this self-employment tax if you’re a new company and make under $400 a year. However, that’s the only tax you’re going to be able to avoid.

If your small business isn’t turning a profit, it’s not likely that the IRS will audit your company. However, it’s still your responsibility to file your taxes, no matter your income situation.

If you’re sustaining losses to take advantage of each deduction, the IRS wants to know about this. By staying on top of each tax, you’ll be able to avoid any type of legal issue down the road.

Calculating Small Business Taxes for Self-Employment

How much is self-employment tax for business owners? Generally speaking, you’re going to need to spend about 30 to 40% of your income on Federal and State taxes.

Keep in mind that you will be paying these taxes quarterly. You should be consistently setting funds aside throughout the year.

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Depending on the small business you own, you might not wind up spending nearly that much. However, it’s better to have too much saved than too little.

Did your company recently start turning a profit? Then you’re definitely going to want to store away 30% of the income every month.

Is your company’s profit pretty much stable each year? Take your last year’s net income and divide it by four. Then set aside 30% of that number, for your quarterly tax payments.

We suggest putting your tax money in a separate business account. If you can, set up automatic transfers every month. Then you don’t even have to think about saving for tax time, it’ll be automatic.

Paying Taxes for Employees

If your company has employees, you’re also going to have to pay an employment tax. The employment tax will be a certain percentage of each dollar that the employees make.

Workers themselves will be paying an identical tax to help contribute to the country’s Social Security System. When you pay employment taxes, you’ll have to report it and deposit it as a federal income tax withholding. This will include Social Security, Medicare taxes, and the federal unemployment tax.

When Do You Have to Pay Sales Tax?

Are you selling services or goods on-site? Then you’ll need to learn how to calculate sales tax. Don’t worry, it’s pretty easy.

The sales will be taxed using a specific rate. The rate is determined depending on the location of the store. While one state will have a sales tax rate of 6%, another state might have a sales tax rate of 1%.

The calculation is easy once you know the sales tax rate for your store’s location. There’s a lot of free sales tax guides online, so you can find out your state’s sales tax percentage.

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You’ll need to take the total cost of the item you’re selling and multiply it by the sales tax rate. The number you get will be the total sales tax.

For instance, let’s say you sell an item that costs $60, and the sales tax rate is 7.5%. You would multiply 60 by .075 to get $4.50.

Now, $4.50 would be the total sales tax for that $60 item. Once you have the sales tax, you’ll need to add it to the original cost to calculate the total cost. In this case, the total cost would be $64.50 for the item.

Certain states are exempt from sales tax, so double check to see if your business falls under this category. Also, keep in mind that states will have different tariffs for different goods.

The general sales tax for restaurants isn’t going to be the same as a general sales tax for clothes. Find out how your state operates before making any calculations.

Stay On Top of the Different Types of Taxes

As you can see, consistently saving for the different types of taxes throughout the year is the best way to thrive. Set up a separate bank account that you can start saving your federal and state income taxes and now.

If you can afford it, set up monthly automatic transfers too. You won’t even have to think about setting the money aside. When it comes time to pay your taxes, you’ll have everything you need in a separate business account.

Looking for more ways to succeed? Then read another one of our information-packed articles.

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