Do These Federal Taxes Apply To Your Small Business?

If you’re running a small business in any industry, no matter its size or nature, there will be a number of different taxes that might be applicable, some of which will be federal. While working with an accountant from the outset can help you get to grips with business taxes and work out strategies to minimize your tax burden, it can be helpful if you’re just starting out as a small business owner, to have an idea of what taxes might be applicable to you.

To help, here are some federal level taxes that may apply to your small business:

Excise taxes

Defining this particular type of tax as one imposed on specific goods or services for sale, it is usually placed upon such items as alcohol, tires, tobacco, fuel and airline tickets among others. 

Imposed at the time of import, at the time at which it is sold by the manufacturer or the retailer, or at the time when it is used by a consumer or manufacturer, some excise taxes are collected by third parties, who must then submit them to the IRS on time. A commercial airline can be thought of as a third party collector of excise taxes, as excise taxes are collected by them on airline tickets bought by passengers. 

If your business is subject to federal excise taxes, you will likely be required to file a Form 720, which is a Quarterly Federal Excise Tax Return. 

Income taxes

Paid on all profits a business makes, the way in which income tax is paid may differ according to the structure of the business. In the majority of instances, small businesses operate as pass-through entities, meaning that its profits and losses are passed on to the owners, who will go on to report it on their own, personal income tax returns. 

For LLCs with multi-member companies and partnerships, a partnership business tax return is filed purely for informational purposes, athough the LLC members and individual partners might be required to pay income taxes on their share of what the business makes. 

For S corporations, an S corporation income tax is filed as a return for the business, and just as with a partnership, its total income is split between the owners, who each pay taxes individually, on their share of that income. 

For sole proprietors, the businesses profits or losses are filed separately with their individual income tax return, with single-member LLCs also reporting their profits and losses directly on the business owner’s return. 

Social security and Medicare taxes

In general, employers are required to withhold both Medicare and Social Security taxes from the wages of their employees, and then match it with the same amount. Additionally, employers must withhold the Medicare tax on employee wages and compensation of 0.9% that goes beyond a certain threshold amount. 

Self-employment taxes

Primarily for those working for themselves, self-employment tax is a Medicare and Social Security tax similar to what is paid for other workers.

Federal unemployment taxes

The Federal Unemployment Tax Act tax, or FUTA, is reported and paid separately by employers, from Social Security, Medicare and federal income taxes, and is not withheld from wages. 

Making any kind of mistake when it comes to reporting and paying taxes can land you in all sorts of bother, and if you’re new to the business world, it’s best to work with an accounting professional to ensure that you’re always compliant with the law, and don’t attract unwanted attention from the IRS. Even if you are familiar with taxes and what you must pay as a small business owner, it’s worth remembering that rules and regulations surrounding federal taxes can be subject to change, making it always useful to have a tax expert in your corner.