types of taxes

Types of Business Taxes

You have probably heard the saying, “There are only two things that are constant in life, death and taxes.” Taxes are a part of life, and to avoid legal trouble, it is best to be aware of the what, how and when of each tax.

The type of business you have determines which taxes you pay and how you pay them, but in general there are 5 different types of business taxes.

Income Tax

All businesses (and individuals for that matter) except partnerships are required to file and pay income taxes. This is a pay-as-you-go tax, it is paid as you earn income, so it is required to be paid on a regular basis. For employees, the income tax is withheld and submitted as Employment tax. However, if you are a business or self-employed, then this tax is obviously not withheld, thus you may be required to pay an Estimated Tax.

Self-Employment Tax

This is the Social Security taxes and Medicare taxes that are collected to cover retirement and disability benefits. Again, for employees this tax is withheld and submitted as Employment tax, but for others, this tax must be paid directly to the IRS by those making more than $400 in net earnings. There are some special rules and exceptions for certain job types, so it is a good idea to talk to your accountant.

Estimated Tax

If you are a business or self-employed, you will probably pay an estimated tax. Regular payments are made throughout the year to cover income taxes and self-employment taxes. When you file your income tax returns, you may have to pay penalties, if you have not been paying your estimated tax.

Employment Tax

This is tax you will pay if you have employees. This includes the Social Security and Medicare taxes and income taxes that are withheld from an employee’s pay. It also includes the Federal Unemployment tax to cover unemployment benefits.

Excise Tax

Businesses that manufacture and sell certain products, operate certain kinds of businesses, or use various kinds of equipment, facilities, or products, may be required to pay an excise tax. This is a special tax that can include environmental taxes, transportation taxes, fuel taxes, or a variety of other taxes.

If you have questions about the types of taxes you are required to pay, how much taxes you are required to pay, or tax paperwork, it is best to consult with your accountant. They will be able to look at your business and tell you exactly what you need to do to make sure you stay in good standing with the IRS.