Before you read any further, take a deep breath and remember that there is a reason why there is an entire industry of accounting professionals. If it was straightforward, businesses wouldn’t need an accountant. Your job as business owner is NOT to learn how to implement the rules, but rather what are the rules (overall) specific to your business; and, who is the best person to assist you in properly implementing and following the rules. Hire the right professionals, hold them accountable, ask lots of questions, be proactive, review everything, and focus on your growing your business.
The best place to start is to understand the “rules of the game.” They are summarized below as 5 Tax Conditions:
1. business tax types
2. geographic tax requirements
3. frequency of reporting and paying taxes
4 have a peek at this website. tax agencies
5. business legal structure
Ask your professional to define those 5 conditions specifically for your business.
Examples of the 5 Conditions:
The most common business tax types include, but are not limited to:
· Income tax
· Employment tax (e.g. payroll tax for corporations, self-employment tax for sole proprietors)
· Sales & use tax
· Personal property tax (e.g. taxes on your fixed assets, such as business equipment)
· Property tax (e.g. commercial real estate holdings)
Geographically, taxes might be reportable at the federal, state, county, and/or city level depending on the tax type and depending on the legal structure of your business. For example, a single-member LLC does not file a separate federal tax return, but is required to file a state return in the state of California.
Employment tax payment frequency changes depending on payroll tax withheld amount, payroll period (e.g. bi-weekly, weekly, monthly) and other factors that may vary by state. For example, payroll tax payments might be required to be deposited on the “next banking day” based on certain circumstances as opposed to weekly or monthly.
Tax agencies can sound a bit like alphabet soup: IRS (Internal Revenue Service), EDD (Employment Development Department), BOE (Board of Equalization) and others. Who gets what and when is important to understand. If you hire a professional, it is their job to know this. Some are federal tax agencies and others are state or local agencies.
Also, keep in mind that the tax rules are different depending the business legal structure (e.g. Sole Proprietors, S Corporations, single-member LLC, multi-member LLC, partnerships.) Sole proprietors and single-member LLCs are subject to Self Employment tax in addition to income tax. For example, the self employment tax for a sole proprietor that had net profit of $100k is almost 12.3%, which is an additional $12k in addition to the income tax due on that profit. This might affect your choice in legal structure. It is a great practice to have a meeting with your accountant AND your corporate attorney at the time to identify the best tax strategy and legal protection.