Business owners have a lot on their plates (especially now in light of all that’s going on in the world), but that’s no excuse to ignore important financial issues like taxes. Although all businesses must pay several types of tax, savvy business owners can reduce their tax burdens by taking a few easy steps. Do you know the types of taxes that apply to you? Perhaps you hire a CPA, but it’s wise to have a baseline understanding! Read on to find out about the different types of business taxes and find some tips for how to keep them low.

Property Taxes

Businesses that own real estate pay property tax to their local authorities. This is most often a city or county tax, based on the assessed value of your property. Those that plan to sell property should also expect to pay capital gains taxes. Find out How to Reduce Capital Gains Tax now before choosing how to invest in real estate.

Income Taxes

Just like individuals, businesses must pay income taxes on any profit they make each year. Some business owners, including sole proprietors, single-member LLC members, S-corporation owners, and partners in partnerships, do so via what’s known as a pass-through tax. This means that you only pay tax once – as an individual. A C-corporation will likely not have this pass through and will have to pay tax on the corporate level and then the individual owners will as well. Bear in mind that business expenses are tax-deductible, so keep track of everything to reduce income taxes (including potentially other taxes that you pay!).

Sales Tax

Not all states have a sales tax, but those that do place the requirement for record-keeping and payment on business owners. What that means is that, while customers are responsible for paying the taxes, business owners must collect it, report it, and give it to the local government. Each state has different laws about what products or services are sales-tax eligible, so check with local tax authorities. Most good point-of-sale software will help you calculate the appropriate amount and add it onto the bill.

Excise Taxes

While maybe not as common for all businesses, excise taxes are levied on certain types of use or consumption, such as fuel, transportation, and communications. They are paid to the IRS either quarterly or annually. Business owners who are supposed to pay quarterly excise taxes should stay on top of bookkeeping to avoid underpayment fines.

Payroll Taxes

Payroll taxes include FICA taxes, which are used exclusively to pay for Social Security and Medicare. Business owners with W-2 employees are responsible for paying half of these workers’ FICA taxes. All businesses are responsible for paying unemployment and workers’ compensation taxes that cannot be collected from employees. The exact amount business owners can expect to owe will depend on how many employees they have and how much they are paid. As you can imagine, this is quite a bit of math and work, but a good payroll service (software or vendor) can help make this much easier.

Gross Receipts Tax

Most states levy income taxes on businesses (covered previously, but a tax on your earnings after expenses), but some states will impose a gross receipts tax instead. States that use this alternative method of tax collection include Nevada and Texas. It’s important to note that while corporations and LLCs almost always have to pay gross receipts taxes, sole proprietorships may be exempt.

Franchise Taxes

This type of tax is similar to income tax or gross receipts tax. It’s charged by states, not the federal government, and sole proprietorships are typically exempt.

Estimated Taxes

There’s certainly a lot of taxes that are being collected on your business, and as you can imagine, the government wants to ensure they get paid. So, established businesses must pay taxes on a quarterly basis, not annually like workers. So, once a quarter, based on last year’s filings, you’ll have to pay 1/4 of the total taxes you expect to pay. Estimated quarterly tax payments are due April 15, July 15, September 15, and January 15. Don’t forget to pay these federal and state taxes on time, because underpayment or failure to make quarterly payments can land business owners in financial trouble.

The Bottom Line

All businesses pay taxes, but it can be hard to figure out which taxes apply and find ways to minimize their financial burdens. The best solution for business owners who feel overwhelmed by the idea of navigating the complex maze of business tax payments alone is to speak with a consultant or a tax preparation expert.

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