If you are not a tax-exempt organization, the business taxes that you owe depend on the type of business that you have. A limited liability corporation, for example, will have a different tax structure than a sole proprietor.
The main federal taxes that business owners must calculate are
- Income taxes: Every business, except partnerships, will need to file an income tax return every year. (Partnerships file an information return.) How your income tax is calculated depends on the structure of your business. Partnerships, sole proprietorships, corporations and S-corps are the most common types of business structures.
- Estimated taxes: Income tax is pay as you go throughout the year. Employees have taxes withheld from their paychecks, but businesses and the self-employed must file estimated taxes throughout the year, based on the income you have earned up to that point in the year. Federally, four income tax payments are due on April 15, June 15, September 15 and January 15 for the previous tax year. Estimated tax is calculated using Form 1040-ES or Form 1120-W for corporations.
- Self-employment tax: Employees generally have Social Security and Medicare taxes withheld from their paychecks. If you are a self-employed business owner, however, you must calculate and pay your own Medicare tax and Social Security tax through self-employment taxes. Some groups are exempted from self-employment taxes, but, generally, if you earn more than $400 from self-employment, you must pay self-employment taxes, which you can calculate using Schedule SE on Form 1040.
- Employment tax: If your business has employees, you have to file a portion of their Social Security and Medicare taxes, along with income tax withholding and the federal unemployment tax. These are calculated and paid through employment tax.
- Excise tax: Not all businesses need to calculate or pay excise taxes. You must pay excise taxes if you manufacture or sell certain products, use specific kinds of equipment or facilities, or receive payments for specific services. Businesses that must pay excise taxes range from indoor tanning providers to aircraft management services. Before calculating business taxes, find out if you are required to pay excise taxes and which forms you will need to file.
Depending on the assets that your business owns, you may need to pay additional taxes, such as property tax. Most businesses must also pay state and local taxes. Though these taxes are often much lower than federal taxes, they can be more complicated to calculate and can carry large penalties for mistakes. Check all your forms carefully before submitting your taxes to avoid fines.
Calculating your business tax does not depend on a single number. Due to deductions, credits, and changes in the tax code, the actual rate that you pay will likely change every year.
To ensure that you are calculating your business taxes correctly, work with a tax preparation specialist or certified accountant throughout the year. A tax pro can advise you on strategic decision-making that will reduce your tax liability and ensure that you receive every deduction, credit or tax exemption possible.