All the Taxes Your Business Must Pay

Business taxes aren't just about income taxes. Just like people in general, businesses must pay several different kinds of taxes.

Taxes for businesses come in several varieties: federal, state, and local. There are also different types of taxes depending on various business activities, like selling taxable products or services, using equipment, owning business property, being self-employed, having employees, and, of course, making a profit.

If you are just starting your business, you need to know what taxes to pay. If your business has changed - if you have bought property or started hiring employees, for example - you'll need to know about the taxes associated with these activities. 

How Each Business Type Pays Income Tax

All businesses must pay tax on their income; that is, the business must pay tax on the profit of the company (the income of the business less deductible expenses). How that tax is paid depends on the form of the business.

Small businesses (sole proprietors and single-member LLCs), partners in partnerships, and S corporation owners pay taxes through their personal income tax returns. The concept is the same for all of these business types, but the process is different. 

Sole proprietors and single-member LLC members pay taxes by filing a Schedule C included with their personal return, while partners in partnerships and multiple-member LLC members file a business return but pay on their share of the income of the business, including this income in their personal returns. 

All is explained in detail in this article.  More

Sales Tax on Products and Services Sold in Some States

Businesses don't directly pay sales tax on products and services they sell. But, if your business operates in a state that has state income tax, you must set up a system to collect, report, and pay state sales tax. 

Sales tax is required to be collected by merchants in most states and paid to the state department of revenue. Specific products and services are sales-tax eligible and money must be collected and paid, and reports must be completed on a regular basis.

Don't forget sales taxes for items you sell online, which many states now are requiring for specific types of sellers (like affiliates).  More

Property Tax on Business Property

If your business owns real property(real estate), like a building, your business must pay property tax to the local taxing authority (usually the city or county) where the property is located.

The tax is based on assessed value (like your house). There are also special considerations for paying property taxes when you sell a piece of business property.  More

Excise Taxes on Use or Consumption

Excise taxes are those paid by a business for certain types of use or consumption (like fuels) and activities (transportation and communications, for example).

Excise taxes are paid to the IRS, either quarterly or annually, depending upon usage, on Form 720.  More

Self-Employment Tax on Owner Share of Business Income

Self-employment taxes are those paid by sole proprietors and partners for social security and medicare, based on the income of the business.

Because business owners are not employees, there is no pay to withhold these taxes from, so self-employment tax is the alternative. 

LLC owners also must also pay self-employment tax. Owners of corporations who work as employees do not have to pay self-employment tax. This article explains how self-employment tax works.  More

Employment Taxes (Payroll Taxes) Paid on Employee Earnings

Like sales taxes, some employment taxes are collected, reported, and paid. In this case, the taxes are paid to the IRS and the Social Security Administration.

Employment taxes are those paid by the owner of a business for several types of taxes based on gross pay of employees. These taxes include FICA taxes (for social security/medicare), federal/state unemployment, and federal/state worker's compensation taxes. How all of these taxes work is explained in this article. 

Some of these taxes (unemployment tax, for example) aren't collected from employees, and they must be paid completely by the employer.  More

Gross Receipts Tax on Businesses in Some States

Most states have a state income tax for businesses. But some states impose a gross receipts tax on businesses instead of a state income tax. In these states, gross receipts (revenues) of the business are taxed. Some states allow deductions for this tax and some types of businesses are exempt in some states.

Sole proprietor businesses are usually exempt from paying gross receipts taxes, but not from state income tax. 

Corporations and sometimes LLC's are most likely to pay gross receipts taxes.  More

Franchise Taxes - Like Gross Receipts Tax

Some states charge franchise taxes to corporations based on the value of the company. These taxes are similar to a state income tax or a gross receipts tax.  More