Simply Junior

This article will guide you through the small business tax maze and describe in details the various tax types your small business may be expose to. Use the article to learn which federal and state taxes you, as the owner of a sole proprietorship, general member in an LLC or officer of an S. Corporation is responsible for.

Federal Income Tax

The Internal Revenue Code (the IRC) is the source for imposing income tax on small businesses. The tax code treats each entity type a little different but in the end the income tax on the business taxable profits is payable by the small business owner. Sole Proprietor has to file schedule C to report business income and expenses and then report the taxable income on form 1040 where he discloses all of his income sources. Member of a partnership or an LLC reports his/her share from the business taxable income on form 1040 and Owner of an S. Corporation does the same. The rates of the federal income tax that a small business owner will pay depend on his/her filing status and residency status. For current tax rates please refer to IRS Publication 17 To register with the IRS you must fill out IRS form SS4 to obtain Employer ID Number (EIN).

State Income Tax

If your business is operating in a state that imposes income tax on business income, you will be liable for that tax in addition and regardless of the federal tax due on the same income. Very few States (Seven to be exact) do not impose income tax and among them are Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Two others, New Hampshire and Tennessee, tax only dividend and interest income. In general state income tax rates range from the lowest rate of 3% in Illinois to the highest rate of 11% in Hawaii. To register with each State’s Department of Revenue, you must complete the applicable registration forms to obtain State Tax ID Number.

Payroll taxAs soon as your business start hiring part or full time employees, it will be subject to Federal & State tax withholding from the employees’ gross wages (For current Federal Withholding rates please refer to IRS Publication 17 and for the Stare withholding rate, please refer to the State’s Revenue or Finance department), Social Security, also known as FICA (currently at 6.2% of gross wages is the employer’s responsibility and the same amount is the employee’s contributions with cap of $106,800 on gross wages) and Medicare (currently at 1.45% of gross wages is the employer’s part and the same amount is the employee’s contributions), Federal & State income tax withholding (at the rates publishes by the IRS and each State’s department of Revenue), Federal Unemployment, also known as FUTA (currently at a rate of 0.008 of gross wages up to $7,000 per year) and State Unemployment, also known as SUTA, at rates assessed by each State Unemployment Insurance Department. To register with each State, you should complete an employer application with the Department of Revenue and open an account with the State’s Unemployment Insurance Department.

Sales Tax

Sales tax is tax imposed on gross sales made to end users (as appose to resellers who purchase the product for inventory) and has many names: transaction privilege tax, gross receipts tax, general excise tax and more. The tax is imposed by each State, and in many cases includes Base Rates for all States residents and then additional rates that vary by county and city. Rates of sales tax vary by States with few States that impose zero percent tax (such as Delaware, Montana & Oregon) and others that impose rates in excess of 10% (such as Chicago Illinois)

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Doing taxes is probably the single most dreaded thing that comes every year for many Americans. Many people choose not to deal with it themselves and they pay others to do their taxes by using expensive either computer software that you have to buy every year, or they simply hand their papers off to the local H&R Block professional. But what people don’t know is that there are many free online tax filing tools that are easily accessible and easy to use. These tools are found online and will change the way you do taxes forever. But, at the same time, many free tax filing tools online are not really free, and it’s difficult to determine which ones are legitimate.

For starters, there is a new free version of the well known tax preparation software, Turbo Tax that will almost do your taxes for you if you can plug in the numbers. If you are fairly young and don’t have any children or complicated tax related issues, this free tax preparation software is the perfect thing for you. Turbo Tax Free Edition will help you fill out simple tax forms like the 1040EZ and other simple returns. It might be useful to note that only filing federal taxes are free while you have to pay for filing state taxes.

A lot of websites try to lure you in by advertising free tax filing in order to try and get you to buy other products like mutual funds, individual retirement accounts, or a refund anticipation loan. Now IRAs and mutual funds may be the right thing for you but a RAL is the real scam. These companies will tell you that you will get your tax refund within 24-48 hours with their website, but they are really offering loans. These loans can be risky and even if you don’t get your anticipated refund, you will have to pay off the amount of the loan. If you choose direct deposit for your refund, you should get your refund in 7-10 days so an RAL is unnecessary.

It might also be useful to mention that anyone with a valid military license is entitled to free tax filing and tax assistance, including free electronic tax filing from VITA, the Volunteer Income Tax Assistance program.

Free taxes may be a tempting deal that you might want to rush into, but you have to be wary of scams that might land you in debt.

Taxes of any type and form always burden you. Your income, off and on, is half eaten by the taxes you pay. These taxes can be federal taxes, state taxes, local income taxes, payroll taxes, which include Social Security and Medicare, sales tax, excise taxes and property taxes. However, if you are intelligent enough, you can apply tax-planning tricks that would eventually enhance your income. Given below are the effective steps for reducing your tax burden:

1. Understand your tax situation – By understanding how much tax you will pay, or what part of your income is taxable, you would smoothen your tax burden. In addition, you should keep a fair account of your daily and miscellaneous spending on various items. These include housing, medical care, food, transportation, recreation, clothing and other luxury items. If you calculate, you would come to know that you spend approximately double the amount of above items on the taxes you pay on your income.

2. How much did you pay as taxes – You can estimate how much you paid as taxes the previous year, and how much extra or less will you be paying this year. You can do this by getting the details of the previous year’s personal income tax returns and comparing it with your present income tax. All information in this regard is found in form 1040, line 62, which also gives detailed information on your total tax liability for the year.

3. Plan your investment – If you know the facts, you will be better in generating your wealth. This means, that you can choose available and effective tax-saving investment plans. You can choose NSC, infrastructure bonds, flexibonds (Anshu – Pls check the research, I don’t think there are NSC bonds etc in America) and the like. Thus, you will save a major portion of your taxes and you can invest this money to earn extra profits. It is this money that you used to waste away paying taxes and adding to Uncle Sam’s kitty. What is more, if you reduce your taxes, the government will give you extra benefits on retirement.

4. Tax Saving Strategies – This is the most important step that will make your income grow. You can download some real tax information from the net on various tax saving strategies. In addition, you can consult a local tax professional.

Thus, by following these simple and effective steps, you will certainly improve upon your income by reducing your tax burden.

Because of a partnership between the Internal Revenue Service (IRS) and 19 Free File partners, including Turbo Tax Online, many taxpayers are now eligible for free online income tax filing.

If you qualify, you can use Turbo Tax Online, or any other of the 19 Free File partners, to prepare and file your income tax return online for free. This program is known as the IRS Free File Alliance.

This free tax filing program is designed for lower income taxpayers with simple tax situations and includes IRS and State tax forms and schedules. However, it is not designed for more complex tax situations such as investments, rentals, royalties, farming, foreign earned income, partnerships, s corporations, estates or trusts.

In addition, twenty-one states have also created free file programs based on the Federal free tax filing program. This means you may also qualify to file your State taxes for free with the Freedom Edition tax software.

Free File differs from conventional tax filing in that Free File is an electronic tax program. You must use a computer and have Internet access to use the free tax filing service. Users enter their income tax data online and tax calculations are made by the online tax software. Completed tax returns are then sent to the Internal Revenue Service (IRS) through the efile system.

Using the (IRS) e-file system allows you to get your tax refund back in as little as 10 days. If it ends up that you owe money, you can have it deducted from your bank account on the last day of tax filing season.