Every business is generally required to pay some type of tax. The amount of taxes that are paid by each business as well as the type of taxes and tax rates that apply will depend on the particular type of business. For example, the laws that govern small business tax will be different from laws that govern the taxing of large corporations.
Business taxes are an important part of the revenue of each state. Payment of these taxes helps to establish the reputation of the business as well as its legitimacy in the community.
Every business owner must be aware of their tax obligations and when their business taxes are due. If a business owner fails to pay their tax payments when they are due, they may incur excessive fines and penalties. Filing to pay business taxes may also negatively affect the way the business is perceived in the market.
What are the Different Types of Business Taxes?
There are 4 basic categories of business taxes. They are modeled after the structural formation of businesses.
As noted above, the rates and other details of the taxation of each type of business will differ depending on the state or jurisdiction. The basic types of business takes include:
- Income tax;
- Self-employment tax;
- Employment tax; and
- Excise tax.
Income tax is a business tax that is based on the yearly income of the business. The form of taxes and amount that will be paid depends on the type of business that is being run.
Self-employment tax, as the name implies, applies to individuals who are self-employed. These taxes, for the most part, are related to Social Security and Medicare issues. This tax is also known as the SE tax.
Employment tax is a tax that is levied on organizations which have formal employer-employee relationships. The employer is required to pay these taxes.
Excise tax is a tax that is impose on certain types of businesses, including those that:
- Operate specific business types;
- Use certain products, equipment, or facilities; or
- Receive payment for specified services.
There are also subcategories for excuse taxes, which include:
- Environmental taxes;
- Fuel taxes; and
- Communications or transport taxes.
Because of the many categories of taxes, a business may be required to pay many different taxes in a single tax year. If the business changes in any way, it will be required to make the necessary adjustments to its taxes.
What Tax Issues Might a Small Business Face?
As with all businesses, small businesses have their share of tax requirements and issues. Small businesses must generally pay several categories of taxes, including:
- Annual business taxes;
- Sales taxes;
- Property taxes; and
- Various other tax requirements.
It is important to note that a small business may have various tax complexities that do not exist for other, more conventional, business types. For example, a small business may be eligible to use tax breaks or preferential tax treatment that is available, depending on the state and local business laws. Small businesses may also have several available tax deductions.
The IRS has has defined some standard types of deductions that may be available for small businesses, including:
- General and administrative expenses;
- Company-related travel;
- Automobile expenses, which includes repairs and maintenance of company vehicles;
- Company-related entertainment; and
- Employee benefits.
What are Corporate Taxes?
Corporate taxes, also referred to as corporation or company taxes, are a type of fee imposed by the federal government on a business’s profits. It is important to note that the federal corporate tax rate is subject to change.
Pursuant to the Federal Tax Cuts and Jobs Act of 2017, the federal tax rate is 21%. This means that after the business expenses are deducted, the corporation will be required to pay the federal government 21% of its total revenue when filing a federal corporate tax return.
In addition to federal and corporate taxes, a corporation may also be required to pay taxes that are specific to divisions of the business. Common types of corporate taxes that a business may be required to pay include:
- Employment or payroll taxes;
- Real estate taxes;
- Estimated taxes;
- Franchise taxes; and
- Excise taxes.
Employment or payroll taxes refer to the percentage that is deducted from an employee’s paycheck. These deductions may be used to pay off taxes such as those for Social Security benefits and Medicare or unemployment.
Some businesses may be required to pay real estate taxes on property it owns. For example, if the corporation owns the building in which the business operates.
In some situations, a business may be required to make installment payments on taxes periodically during a given year. This is generally required when a business expects to owe $500 or more in federal income taxes.
In certain states, a business is required to pay a special kind of tax for operating or remaining open in that specific state. This special type of tax is called a franchise tax.
Another type of tax a business may be required to pay is an excise tax. As discussed above, these taxes only apply to certain goods, including:
- Some luxury goods; and
- Other items that are regulated by tax laws.
What are Business Tax Disputes?
Business tax disputes are legal issues that are tax related which happen during the course of running a business. These types of disputes are very serious and may affect the reputation of the business.
A business owner that has tax issues should hire an attorney who understands the changing tax laws and the numerous tax liabilities that the business owner may face. In some cases, a business tax dispute can be negotiated into a settlement in a federal court setting.
Tax disputes may differ depending on the type of business that is facing the tax dispute. In addition, these disputes can arise for a variety of reasons.
For example, it is common for disputes to arise between employers and employees regarding tax deductions. There may also be issues involving mistakes that are made on a business tax return form. Disputes regarding business tax deductions are common, especially in small businesses.
If an individual has a dispute regarding business taxes, they should compile all relevant documents that may be related to the issue, which may include:
- Tax forms;
- Accounting sheets; and
- Expense reports.
These documents may be necessary should an individual be required to file a lawsuit due to a dispute.
Do I Need a Lawyer for Help with Business Tax Issues?
It is essential to have the assistance of an experienced tax lawyer for any business tax issues you may face. Business taxes can be extremely complex, especially in the case of corporations. Self-employed individuals can also face difficult tax issues.
A business lawyer can be of great assistance when you are facing tax issues, which are often overwhelming and intimidating. Your lawyer can review your claim, help you file your taxes and ensure they are accurate, and assist you in resolving any disputes you may have regarding tax issues.
Your lawyer can also represent you in court, should it be necessary to file a lawsuit or a lawsuit is filed against you due to a dispute. If you are running a corporation, your lawyer may also be able to assist you in using the tax structure that is most beneficial for your business.