Know Your Taxes- Startup Taxation

Taxes have never been easy to deal with. It takes time and efforts and a lot of patience to be able to understand them and file them at the right time. Also, the changes in taxation policies make it even more tiring to catch up on time. Your taxes will be determined by the structure you choose for your business. The effective tax rate on an average is 19.8%. For sole proprietorship its 13.3%, for small partnerships 23.6%, small S corporations pay 26.9%, C-corporations pay flat 21%. New businessmen do not pay much attention to taxes as they get totally engrossed in launching the new business. Taxes need to be filed and paid in time to ensure the smooth functioning of the business.

Here’s a list of taxes that every new businessman needs to make a note of before starting their operations:

Income Tax

Apart from Partnership, every business needs to file for Income Tax. these are to be paid on wages, salary, investment incomes and on any gains from selling their property. You are required to pay for every income that you earn in a year. Failing to do so, you will be entitled to pay estimated tax.

Estimated Tax

Estimated Tax has to be paid by sole proprietors, partners, and S corporation shareholders if they owe $1,000 or more tax when they file for their return. Corporations are liable to pay Estimated tax if they owe $500 or more tax at the time of filing return. You are NOT liable to pay tax for the current if you fit in all the three criteria:

  • No tax liability for the prior year
  • You were a citizen of US or resident for the whole year
  • Your prior tax year covered a 12-month period

Self Employment Tax

Self Employment (SE) Tax ensures your social security system under which you get retirement benefits, disability benefits, survivor benefits, hospital insurance benefits. It is for individuals who are self-employed. You must pay SE Tax IF:

  • your net earnings from self-employment are $400 or more or
  • you work for a church or qualified church-controlled organization (other than as a minister or member of a religious order) that elected an exemption from social security and Medicare taxes, you are subject to SE tax if you receive $108.28 or more in wages from the church or organization.

Employment Tax

There are certain taxes that an employer has to pay which include:

  • Social security and Medicare taxes
  • Federal income tax withholding
  • Federal unemployment (FUTA) tax

Employment Tax is also called Payroll tax and certain firms hire payroll companies who manage these taxes on their behalf. These people are responsible for filing and paying your Employment taxes on time.

Excise Tax

If you manufacture or sell certain products, operate some kinds of businesses, use various equipment, facilities or products, receive payment for some services then you are liable to pay Excise Tax. Environment tax, fuel tax, Communications, and air transportation tax, tax on trucks, truck tractors, buses, tax on the wagers you receive, etc. are some taxes that fall under excise tax.

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