Different types of corporate taxes
Calculating and paying your taxes as a natural person can be a relatively simple and quick process, however, when opening a company and starting a business, the range of taxes opens up a lot since businesses must pay taxes at different levels: federal, state and local, and for different actions (payroll taxes, sales taxes, income taxes, etc.)
In addition to this, the different tax rates and tax responsibilities are determined by a variety of factors, among which are: Your geographical location, the legal structure of your company (LLC, Corp, S-Corp, etc), the services and products you offer and how you conduct your business.
Income TaxesAs you know, your business will have to pay income taxes depending on the sales and profits it generates, these taxes will be conditioned by the legal structure of your company.
- If your business is incorporated as a C Corporation (Inc, Corp, Co, etc), or as an LLC that files taxes as a C Corporation, you will most likely have to report your earnings or income on your personal income tax return. Dividends will be taxed at personal tax rates, and finally the corporation as such will be subject to paying its income taxes. In summary, there will be a double tax payment: In the personal declaration of the owners and shareholders of the company, and then the company must pay the income taxes that correspond to its income.
- If your business is incorporated as a Partnership, S-Corp, or an LLC filing taxes as an S-Corp or Partnership, you must report your taxes on your personal return, the business itself is not subject to taxes at the federal level.
Depending on where you are located, your business may have to pay state taxes in the state in which the company is registered, and in other states in which it has offices or staff, it is important to consult with your accountant to help you determine your tax responsibilities in different states.
If you have employees, you must pay FICA (Federal Insurance Contributions Act) taxes, corresponding to Medicare and Social Security that are withheld from your employees' paychecks, and must be matched by the company.
The Medicare tax is 1.45% for the employee and 1.45% for the company, for a total of 2.9%. For Social Security, the tax will be 6.2% for both parties, with a total of 12.4%. These combined taxes total 15.3%.
The FUTA (Federal Unemployment Tax Act) is a tax law that provides unemployment compensation payments to workers who have lost their jobs. It is a tax paid only by the employer. The FUTA tax rate is 6%, which is levied on wages up to the first $7,000 earned by the employee during the year.
It's important to check with your trusted accountant to make sure you're withholding the correct amount of this tax on your payroll.
Sales taxes are quite a complicated subject, there are a lot of regulations, rules, exceptions, etc., that make this a difficult world to fully understand and manage.
The main thing to know is that sales taxes are assessed at the state level, and it is the state that determines which services and goods should be taxed, and how much.
You will only have to pay sales tax in those states in which you have a “nexus”, this means that you will have to pay Sales Tax in those states in which you have a significant connection or relationship. A nexus can be created if you have a physical location, staff working for you, or maintain inventory in this state. There are other reasons why a nexus can be created with a particular state, again we recommend consulting with your accountant to assess your tax responsibilities in each of the states.
You must always pay Sales Tax in the primary state where your company is located, you must obtain a permit to collect sales tax in all states in which you have this responsibility.
You must report your taxes periodically, although this will depend on the state in which you have to file these taxes, each state has its particular deadlines, some states will offer discounts or credits for filing your taxes on time.
Taxes for independent employees (Self-Employment Tax)
Self-employed people must pay their taxes corresponding to Medicare and Social Security, but in this case the payment must cover the retention in the check of a common employee plus the percentage paid by the company, that is, they must pay 2.9%. of Medicare and 12.4% of Social Security, for a total of 15.3% of "Self Employment Tax".
Stay on top of other taxes
It is possible that there are other taxes that apply to your particular situation, or that new laws are created that may affect you, it is important that you always keep an eye on such changes, buy a property, hire employees, expand your business, etc., all of this can change your tax obligations, always check with your accountant to see if your circumstances have changed.
If you need advice for your business, do not hesitate to contact us, our extensive experience working with clients located in different states and with different types of businesses can help you identify tax responsibilities that you have not previously considered.