8 Business Taxes You May Need to Pay in 2020
Whether you’re just starting a business or are years into operating one, every business owes an assortment of taxes come tax season and understanding the types of taxes you owe is critical to the success of your business. Taxes may affect decisions regarding the structure of your business, and it will help prevent delinquent returns and other legal issues. Discerning the types of taxes you owe ahead of time can also inform how to best conduct year-round bookkeeping practices, helping you to stay organized and prepared once it’s time to file.
Depending on the kind of business you own, the structure of your company, the location in which you conduct business, and whether or not you’ve made a profit, you’ll owe different types of taxes. Below are eight common taxes your business may owe in 2020.
8 Common Types of Business Taxes
1. Income Tax
Every business needs to file an annual income tax return, and partnerships file an information return. Throughout the year, income tax is paid on an ongoing basis; taxes are deducted from employees’ pay, and then businesses typically will pay the IRS quarterly.1
2. Estimated Tax
Estimated taxes are based on the money that you, the owner, take out of the business. Since you aren’t an employee, taxes are not automatically deducted from this amount. If you as an individual, sole proprietor, partner, or S corporate shareholder suspect to owe over $1,000 ($500 for corporations), you’ll make an estimate based on your expected adjusted gross income, taxable income, taxes, deductions, and credits.
Similar to income tax, estimated taxes are paid throughout the year on a quarterly basis and are used to pay income tax, self-employment tax and alternative minimum tax.1
3. Employment Taxes
If you have employees, you are required as the employer to pay certain employment taxes that are based on the gross pay of your employees. These taxes include federal and state unemployment taxes, income tax withholding, and social security and Medicare taxes.2
4. Excise Tax
According to the type of business you run and the kinds of equipment you utilize, you may owe excise tax. Excise taxes are required with the consumption of certain products, like fuel or transportation vehicles. Excise taxes include various types of taxes, such as environmental taxes, air transportation taxes and fuel taxes.1
5. Self-Employment Tax
If you work for yourself, you must pay self-employment taxes, which go towards your social security coverage. This tax contributes to your retirement benefits, disability benefits, survivor benefits and Medicare benefits.1
6. Sales and Use Tax
This tax varies depending on the state and locality, but it is generally a tax imposed on products sold and certain services provided. This is the additional tax added to the price of the goods you sell, and it is paid to the Department of Revenue in the state you operate your business in.2
7. Franchise Taxes
In some states, corporations and LLCs must pay taxes simply for operating their business. This can be the case even if your business does not have a physical location in a state. Verify your state’s franchise tax laws by checking your state department website.
8. Property Taxes
If your business owns property, you are required to pay taxes to your county or city. Similar to owning a home, real estate taxes for your business are calculated according to the value of the building and land owned by your business.2
As a business owner, accurately paying all of your necessary taxes is essential to the longevity of your business. If you’re looking to save on taxes this year or if you have a complex business situation, it’s always useful to reach out to a certified legal tax advisor who can take a look at your unique situation.
This content is developed from sources believed to be providing accurate information. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.