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 What are Business Taxes?

What are Business Taxes?

The IRS lists five different types of business taxes, as indicated below. Not all business owners will have to pay every type of business tax, though! The business taxes you pay will depend on the type of business you run.

Income Tax

Since you operate a business, you will need to file an income tax return on behalf of your business. In this case, the business’ “income” is the profit it has accrued throughout the year. As a business owner, you must pay taxes on that profit. You can subtract any deductible expenses first, though! The level at which the tax liability rests and how income tax is assessed depends upon the type of business you operate (sole proprietorship, single member LLC, partnership, S Corporation, or C Corporation).

Estimated Tax

Employees have money withheld from each of their paychecks for tax purposes. But if you’re a business owner, you’ll have to pay regular income taxes throughout the year. To do this, you’ll file an estimated tax form at quarterly intervals. This form will account for both business and personal income, as well as self-employment taxes.

Self-Employment Tax

Do you earn more than $400 per year by working for yourself? If so, then you may have to pay a self-employment tax. This tax goes toward your social security and Medicare coverage.

Employment Taxes

If you have employees, you’ll need to pay certain employment taxes. These include Social Security and Medicare taxes, half of which you withhold from your employees’ paychecks and the other half of which you pay as the employer. These taxes also include federal unemployment taxes, which you must pay yourself.

Excise Tax

If you professionally gamble or sell products like fuel, cigarettes, or alcohol, you may have to pay excise taxes.

Additionally, some states may require business owners to pay sales tax, property tax, litter tax, tire tax, gross receipts tax, franchise taxes or dividend tax. Again, the taxes you owe will depend on the type of business you own and the state of your business license.

Does the IRS offer any late payment options?

If you can’t pay your business taxes by the appropriate due date, you’ll incur some penalties and fees. However, the IRS does offer a variety of payment options. First, make sure to pay as much as you can by the due date. Then, you may be able to request a 120-day extension. If you get this extension, you’ll still have to pay the necessary interest. You can also try to set up an installment plan to pay the rest of your taxes, or pay a fee to use a credit card.

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