French Larry Taylor explains types of small business taxes
French L. Taylor says there’s income tax that individuals pay on wages, income from property sales, investment income. On the other hand, a company pays tax on net income, which remains after subtracting expenses.
Solo-owned businesses, LLCs, and other forms of ownership are pass-through entities. Flow-through or pass-through businesses pass their income on to the founder or owner. Because of this, the owner pays tax at their personal level on business earnings.
According to French Larry Taylor, the owner shows the business income when they submit their personal returns.
French Taylor notes that a small business must pay employment taxes or payroll taxes since they’ve got employees. Federal and state unemployment taxes, federal withholding, and social security and Medicare taxes are employment taxes.
French Taylor adds that a small business may outsource a payroll company to handle payroll tax liabilities, including filing tax forms. That’s because payroll taxes are demanding, and a small business can face severe penalties if it fails to file tax returns. Or worse still, the courts can prosecute the business.
Self-employed individuals also pay self-employment fees, such as social security and Medicare, French Larry Taylor says. In addition, self-employed individuals must pay tax on their income if net earnings were a minimum of $400 in the previous year.
In some companies, employers pay 50% of social security and Medicare taxes on their workers’ income. They also keep the other half of the workers’ paychecks and then pay it to the federal government.
However, people who work for themselves have to pay all the taxes. Those who work for faith organizations have separate tax rules, French Larry Taylor explains.
French Larry Taylor explains that tax authorities levy excise tax on certain goods and services. Since it’s an indirect tax, consumers don’t pay the tax.
As an indirect tax, the federal tax authorities add the tax to the price of products and services. Examples of such goods are liquor and cigarettes. Because of this, small businesses that supply these products must collect the taxes and then remit them to the IRS.
French Taylor says that the U.S. doesn’t have federal sales tax. But 45 states and many localities charge sales tax. As a result, small businesses operating in these locations must collect and pay sales tax to state and local authorities.
Unlike the excise tax, sales tax is a direct tax that consumers pay at the point of purchase. French Larry Taylor also notes that e-Commerce businesses must collect and pay sales tax from buyers outside their states.
Property tax applies when a small business owns real estate, including commercial buildings, shops, or land. It pays business property tax to the local country or city.
French Larry Taylor, a federal tax expert, holds a Master’s in Taxation from the University of North Texas and a Bachelor’s in Business and Public Relations from Austin College. He’s a specialist in Federal tax law, specifically Section 199 deduction and tax accounting methods.