While an entrepreneur is accustomed to wearing multiple hats and being responsible for various aspects of their business, taxes are often one of the primary causes of frustration and stress. Being familiar with the different types of taxes can help you decide if you’re prepared to handle the task on your own or if it would be wise to seek professional assistance.
Retail sales tax
Unless your business specifically provides services, it’s likely that there are retail sales involved that will require the collection of sales tax. The retail sales tax percentage is determined by both your state's department of revenue and any localities that may have an additional assessment. The percentage is collected by the vendor directly from the customer, and then it is up to you to properly file a return and turn the money over as required. Although some companies may qualify to do so quarterly, many small businesses are required to file monthly returns and make the necessary payments.
Local tax
Many small businesses operate in areas that are subject to local tax assessments, and it’s important to understand that certain industry-specific tax categories exist as well. There can be business property tax due on real estate or even equipment. There may be accommodations or hospitality tax assessed by a city or town. Some of these costs, such as those related to the hospitality industry, may be passed on to the consumers and filed monthly along with the retail sales tax. Business property is often taxed annually by the county or city in which a company operates.
Income tax
After your profit and loss statements are prepared at the end of the fiscal year, it's time to determine how much state and federal income tax you owe. The type of business entity is going to dictate which forms must be filed with the IRS and when the returns are due. An LLC, for example, is often included on a personal tax return, whereas a corporation would have to complete a separate return prior to the tax deadline. Corporations also must file quarterly tax returns, whereas a smaller company may only file annually.
Other tax
Some small businesses, such as companies that rely on importing or exporting goods, will find themselves responsible for paying or collecting additional taxes. Alcohol sales, for example, involve an additional tax that is collected and paid along with retail sales tax. These various tax amounts are often due monthly and may or may not require separate returns to be filed.
Payroll tax
If you have employees, the accurate processing of payroll includes a number of different types of taxes that are withheld and paid. The employer is responsible for collecting individual income tax for both state and federal, collecting Social Security and Medicare tax, and paying the employer's share of the payroll tax. Most companies file and pay these every quarter, but if you use a payroll processor, they are likely to collect the necessary funds and make the tax deposits on your behalf.
When to get help
In addition to being aware of the different types of taxes, knowing how and when to file your returns, and knowing what governing entities are involved, the most important thing you can learn is when to seek professional help. The liability involved and potential for penalties should be enough to encourage any small business owner to ensure they are compliant and know how to remain so.
The best advice we can give? Start early. Grab your transaction details from the Authorize.net merchant interface, maintain your accounts and reports properly, and get started on those taxes. Happy filing!