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Fundamental Facts About Business Tax


July 26, 2021

Business owners gladly wear many hats within their company but being lead accountant is not usually one of the most pleasurable roles they are responsible for. And this is no surprise given that business taxes can be quite complicated and therefore, very intimidating, especially for someone who lacks any formal experience with tax planning, preparation, and filing.

As a relief for any concern that you may have as a current or potential business owner, continue below to review some of the most fundamental facts about business taxes, and where to find dependable business tax planning and preparation assistance in Central Indiana.

Common Types of Business Tax

Federal Income Tax

Just like everyone else in the United States, businesses must also pay taxes on the profits they make. These are known as income taxes and are the most common type of business tax in the country. Keep in mind however, businesses pay federal income taxes, not individual income taxes. So, the income tax they pay is based on their business’s profits, not their personal income.

Depending on your business structure, this can also vary. Some businesses are considered a corporate tax, and therefore taxed as an individual entity.  In some cases, even when a business is assessed as a corporate tax, they are still subjected to certain small business taxes as well. This type of business referred to as a “pass-through entity.”

Employment Tax

Businesses that pay individuals to work for them must also pay employment taxes. Their many different kinds of employment taxes, all of which depend on the type of business structure. Self-employment taxes are paid out-of-pocket by business owners who are self-employed. These employment taxes cover Social Security and Medicare (FICA).

For business owners who have employees, they will cover half the cost of Medicaid and Social Security and withhold the other half from their employee’s paychecks. Business owners with employees are also responsible for withholding federal income tax from their employee’s paychecks and then submitted to the government.

FUTA taxes are also withheld from employee paychecks by business owners, which is basically a federal unemployment tax. Some businesses are eligible for a tax credit that will reduce FUTA tax rates, but business owners will need to check with their Indianapolis Indiana business accountant to confirm eligibility.

Sales Tax

In some cases, businesses must also pay sales tax. Not all states charge a sales tax, such as Florida, but 45 states in several local governments within the country do require sales taxes. Sales taxes are collected on every taxable sale made by the business and submitted along with a detailed tax return to the proper authorities within the set filing deadlines.

Excise Tax

Excise taxes are another type of business tax that must be paid by businesses that sell tobacco, alcohol, or fuel. In order to cover excise tax expenses, businesses often add an upcharge to these items, but ultimately, business owners are responsible for paying excise taxes all on their own.

Property Tax

Some businesses have also pay property taxes. Businesses that own a retail space or warehouse must pay property taxes, but business owners who individually own a property that they operate their business out of will likely be subjected to personal property taxes rather than business property taxes. However, this can differ among local tax authorities.

Businesses Pay Taxes Quarterly

Businesses pay taxes as tax liability is incurred, so while individuals pay their taxes once a year, businesses pay 4 times a year, or quarterly. In the case that you do not accurately plan your business tax installments and end up overpaying the IRS, you will receive money back at the end of the year in the form of the tax refund. Oppositely, if you underpay you could be subjected to several types of IRS penalties, namely fines and restitution.

Are you looking for dependable business tax advice regarding your Indiana business? Contact Aspire CPAs, PC at 317-469-4500 to speak with a licensed accountant who specializes in business tax planning and preparation in Indianapolis, Indiana. You may also request an appointment, online.

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