11/ 29/ 2004
by Jeffrey Moses
It is important for people starting new small businesses to be familiar with the taxes they will need to pay—both during start-up and on an ongoing basis. Working with your business advisers, attorneys and accountants as a new small-business owner, you should integrate tax planning into your initial business plan to assure that the procedures of collecting and saving tax records is built into business operations.
The taxes a new business will need to pay depend to some degree on the type of business the owner decides to start, but in general, planning for payment of the following types of taxes should be considered:
1. Sales tax. If your company provides products or services, you'll need to arrange for payment of sales tax. Generally, each sale, admission charge, storage charge or rental charge is taxable unless exempted by state or local regulations. Registration should be made with your state's departments of revenue or finance and with county and/or city departments when required. Forms will be provided for payment, which is usually made quarterly.
2. Employment taxes. As an employer, you will need to file forms and pay various taxes, including: Social Security and Medicare taxes, federal unemployment tax and federal income tax withholding.
3. Real estate taxes. Your annual assessments will come from your local department of revenue or finance. Real estate taxes normally are due and payable by a specified date, but it is wise for a small business to set aside an amount each month or quarter to avoid having to pay the entire amount at one time.
4. Income tax. Unless your company is a partnership or sole proprietorship, you will have to file an annual income tax return. Corporations and LLCs must pay both local and federal taxes, based on a percentage established by amount of revenue. S Corporations and partnerships file forms providing information about revenue and expenses, but all owners or partners file individual income tax forms. Individual partners usually pay estimated taxes quarterly, based on the previous year's taxes and estimated taxes for the coming year.
5. Self-employment taxes. Self-employed individuals and, in some instances, partners of a partnership, are responsible for Self-Employment taxes, which covers Social Security retirement benefits, disability benefits, survivor benefits and Medicare benefits.
The payment of taxes should never be considered a one-time event during a year. Rather, collection of funds, allocation of required amounts and filing of forms should be a regular part of day-to-day operations. By incorporating these activities into regular business operations during the formation of a new company, tax responsibilities will be streamlined from the start.
