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Key Tax Types Every Business Should Know

If you’re operating a business, you need to be aware of your tax obligations and have a plan for paying them in full and on time.
Most U.S. states levy some form of tax on business income or gross receipts.
Business taxes come in numerous forms. Some apply to enterprises of all types, while others are specific to certain jurisdictions, industries, and entity types. As with all things tax-related, it’s a good idea to sit down with an experienced tax attorney or advisor who can help you assess your unique situation. In the meantime, we’ll cover five general business tax types that every business owner should know about and five more you might also encounter.
5 General Business Tax Types
These taxes are all levied at the federal level by the Internal Revenue Service (IRS), and they impact millions of businesses nationwide:
1 Federal Income Tax
One way or another, all business profits are subject to income tax. If your business is organized as a sole proprietorship, partnership, LLC, or S corporation, it doesn’t pay federal income tax at the entity level. Instead, profits flow through to individual owners, partners, members, or shareholders, who report those earnings on their tax returns. If your business is a C corporation, it must report its gains and losses and pay a flat corporate income tax rate on its profits.
2 Quarterly Estimated Tax
Most businesses must pay estimated taxes four times a year to avoid penalties. Regular employees generally have taxes withheld from each paycheck, which ensures a predictable revenue stream for the government and eliminates the burden of a big tax bill at the end of the year. Similarly, businesses and solo entrepreneurs are incentivized to estimate and pay federal income taxes quarterly. If you end the year owing too much, the IRS may impose penalties and interest charges.
3 Excise Tax
Excise taxes are imposed on specific goods, services, and activities. For small and midsized enterprises, the most common categories include alcohol, firearms, telecommunication services, indoor tanning, and fishing gear. Excise taxes can be imposed at different points along the value chain – for example, upon importation, manufacture, sale, or use. Unlike sales tax, excise tax is usually invisible to the customer and is built into the sticker price. In most cases, businesses must report and pay these taxes on a quarterly basis.
4 Self-Employment Tax
Most solo entrepreneurs have to pay Social Security and Medicare taxes. Hourly and salaried workers typically have the “employee portion” of these taxes withheld from their paychecks, while the business they work for contributes the “employer portion.” If you’re your own boss, you’re generally responsible for paying both portions. However, you can deduct the employer portion as a qualified business expense, reducing your overall tax liability. Also, LLCs that elect S corporation status may provide owners partial relief from self-employment taxes.
5 Payroll Tax
Employers are responsible for Social Security, Medicare, and unemployment taxes. As noted above, Social Security and Medicare taxes are split between employee and employer. Ordinarily, the employer portion must be submitted via the Electronic Federal Tax Payment System (EFTPS) on a monthly or semiweekly basis. Employers must also pay the Federal Unemployment Tax Act (FUTA) taxes every quarter to fund state-level unemployment insurance and job search resources. Payroll service providers can help process these required filings and deposits.
5 Other Business Tax Types
These taxes may be levied at various levels of government and may or may not pertain to all businesses within
that jurisdiction:
1 State Income Tax
Most U.S. states levy some form of tax on business income or gross receipts. Many states follow the IRS’s lead and require quarterly estimated tax payments and annual returns. Look up your state’s laws.
2 Property Tax
Businesses that own buildings or land are responsible for property taxes. Municipalities, counties, or school districts may levy them. If you have a mortgage, your lender may withhold and pay these taxes for you.
3 Sales Tax
Many states and localities require businesses to collect and remit sales tax. Most consumer goods, prepared
foods, digital products, and personal services are taxable. Usually, sales tax must be remitted on a monthly
or quarterly schedule.
4 Franchise Tax
This isn’t a tax on franchises – it applies to many businesses in certain states. Essentially, it’s a fee for operating in that state, and it may be calculated on various bases, including net worth or margins.
5 Capital Gains Tax
This tax may be levied on profits realized from the sale of noninventory assets. This most often impacts small businesses when they sell off real estate, equipment, intellectual property, or shares of stock at a profit.
Tax? Relax.
For more individualized guidance on business tax planning and preparation, consult your financial institution.