\n\n
Running a business means that there will be more complex taxes than if you work for one. This involves taxes that businesses pay on behalf of their employees, as well as various taxes related to running a business. Different goods and services can require other types of taxes, and different states have different requirements.<\/p>\n
Key Takeaways:<\/b><\/p>\n An Employment Identification Number is required for most businesses, but it also helps preserve privacy and prepare for future expansion.<\/p>\n<\/li>\n There are several different types of taxes that small businesses must pay. They include income taxes, self-employment taxes, property taxes, excise taxes, employment taxes, as well as sales and use taxes.<\/p>\n<\/li>\n Recordkeeping is essential for hiring and paying employees. Employers are responsible for payroll-related taxes, verifying that an employee can work in the United States, and reporting hires to their state agency.<\/p>\n<\/li>\n<\/ul>\n An Employment Identification Number (EIN) is a necessary first step in starting a business. It\u2019s sometimes also referred to as a federal tax identification number or employer tax ID. An EIN is usually only used if you have employees; otherwise, the business owner\u2019s social security number is used as an identifier.<\/p>\n An EIN isn\u2019t required for every small business. Here are some things to consider:<\/p>\n Do you plan to hire employees?<\/p>\n<\/li>\n Is it a corporation or partnership?<\/p>\n<\/li>\n Will you be withholding taxes on income paid to a nonresident alien?<\/p>\n<\/li>\n Is the business part of a:<\/p>\n Trust<\/p>\n<\/li>\n Estate<\/p>\n<\/li>\n Farmers cooperative<\/p>\n<\/li>\n Real estate mortgage investment organization<\/p>\n<\/li>\n Plan administration<\/p>\n<\/li>\n Keogh plan<\/p>\n<\/li>\n Nonprofit<\/p>\n<\/li>\n<\/ul>\n<\/li>\n Will you be filing taxes on excise, tobacco, alcohol, or firearms?<\/p>\n<\/li>\n<\/ul>\n If the answer to any of these questions is yes, then the IRS requires that you apply for an EIN. An EIN is primarily used for tax purposes, and it allows the IRS to keep track of who you pay and how much. That\u2019s why they\u2019re also required for 1099<\/a>.<\/p>\n EIN has other benefits as well. They can also be required for you to obtain certain business-related services. Such services include:<\/p>\n Opening a business bank account<\/p>\n<\/li>\n Acquiring a business credit card<\/p>\n<\/li>\n Applying for business permits<\/p>\n<\/li>\n Getting a business loan<\/p>\n<\/li>\n Acquiring a business license<\/p>\n<\/li>\n Giving Form 1099 to independent contractors<\/p>\n<\/li>\n<\/ul>\n Lastly, a large benefit of having an EIN is privacy. Even if your small business is an LLC and doesn’t employ anyone or meet any of the other requirements to have an EIN, it\u2019s still a good idea to get one. It makes it so that you don\u2019t have to use your SSN as a business identifier and limits the likelihood of identity theft.<\/p>\n An EIN won\u2019t completely protect you, of course. But even if someone does manage to get ahold of your business information, it\u2019ll be harder for them to access your personal information than if it\u2019s your SSN.<\/p>\n As a business owner, you\u2019ll have to deal with more than just your own personal income taxes. There are several different types of taxes that you\u2019ll have to keep in mind. Some of it will depend on the type of business<\/a> you run and just how small your small business is, but here\u2019s an overview of the typical taxes.<\/p>\n Income tax.<\/b> As with when you\u2019re working for someone else, you have to pay income taxes. However, unlike when you work for a company, there aren\u2019t taxes withheld on your income. That means you should keep them in mind over the course of the year and set aside money for the purpose.<\/p>\n Business taxes vary state by state and also depend on the type of business you run. Partnerships, for instance, instead file an annual information return rather than paying income taxes.<\/p>\n<\/li>\n Self-employment tax.<\/b> In order to be covered under the social security system, you have to pay social security and Medicare taxes. Normally your employer pays them, but if you\u2019re your own employer, then you\u2019re the one who has to pay them. Details vary depending on your circumstances, so be sure to do your research.<\/p>\n<\/li>\n Property tax.<\/b> Every state\u2019s rules on what should be counted as taxed property differ, meaning you\u2019ll need to check the local rules. Some are focused on business with commercial real estate locations. In other states, vehicles, business assets, and electronic equipment can all be included as taxable property.<\/p>\n<\/li>\n Employment taxes.<\/b> Having employees complicates business ownership and requires a lot more paperwork. In addition, you’ll be expected to cover certain taxes related to employment. These include:<\/p>\n Social security and Medicare.<\/b> If you employ others, you go beyond having to pay social security and medicare taxes for yourself; you\u2019ll also need to pay it for your employees. This allows the whole system to stay funded.<\/p>\n<\/li>\n Federal income tax withholding.<\/b> You\u2019ll be responsible for your employee\u2019s withholding. Federal taxes will be the same nationwide, but different states have different rules for their own tax collection.<\/p>\n<\/li>\n Federal unemployment (FUTA) tax.<\/b> The purpose of this tax is to fund unemployment benefits. This allows employees to collect those benefits between jobs.<\/p>\n<\/li>\n<\/ul>\n<\/li>\n Excise tax.<\/b> This tax is only applicable if your business is involved in manufacturing or selling certain products. It applies to certain types of equipment, facilities, and products. Included in this can be:<\/p>\n Environmental taxes.<\/b> Depending on the impact of your business, you may need to pay environmental taxes to offset it. These vary widely by state.<\/p>\n<\/li>\n Communications and air transportation taxes.<\/b> Air travel is highly regulated for safety reasons. Maintaining that system is expensive, so those that make it their business need to pay taxes on it.<\/p>\n<\/li>\n Fuel taxes.<\/b> For transportation companies<\/a> or other businesses that use a lot of fuel \u2013 or a specialized fuel \u2013 there can be additional taxes.<\/p>\n<\/li>\n Taxes on the first sale of heavy trucks, trailers, and tractors.<\/b> Certain large vehicles have additional excise tax connected to them. Generally, the requirements are tied to the vehicle\u2019s weight.<\/p>\n<\/li>\n Wagering or betting.<\/b> If you run a betting service or lottery, there can be additional excise taxes involved.<\/p>\n<\/li>\n<\/ul>\n<\/li>\n Sales and use tax.<\/b> Many states tax goods and services. What is taxed and how much it\u2019s taxed will vary from state to state. Many exclude food, medicine, clothing, newspapers, and utilities \u2013 some will also exclude books.<\/p>\n In addition, sometimes you\u2019ll end up having to pay additional or supplemental taxes if you buy something from out of state \u2013 especially if that state doesn’t have a sales tax.<\/p>\n<\/li>\n Estimated tax.<\/b> You\u2019re required to pay federal income tax on income that isn\u2019t subject to withholding. This will be an estimated tax. An estimated tax will also apply if what\u2019s being withheld isn’t enough to cover the taxes that you owe.<\/p>\n<\/li>\n<\/ul>\n While there are several different types of taxes that you\u2019re required to pay as a business owner<\/a>, there are also various ways to get tax relief. Many of them are the same ways that individual taxpayers can get some tax breaks, but the rules are slightly different for businesses.<\/p>\n These include:<\/p>\n Tax relief in disaster situations.<\/b> Disasters can have huge financial implications for small businesses. The IRS offers tax help in these situations. If your business is in an area that is a federally declared designer area, you can get a faster refund if you file an amended tax return.<\/p>\n<\/li>\n Energy tax incentives.<\/b> Energy conservation efforts can be rewarded with a tax break. Depending on what state you live in, you may be able to get additional benefits<\/a> as well. You can get tax breaks for purchasing any of these for your home or business.<\/p>\n Solar panels.<\/b><\/p>\n<\/li>\n Solar water heaters.<\/b><\/p>\n<\/li>\n Small wind turbines.<\/b><\/p>\n<\/li>\n Geothermal heat pumps.<\/b><\/p>\n<\/li>\n Fuel-cell equipment.<\/b><\/p>\n<\/li>\n Biodiesel and renewable diesel.<\/b><\/p>\n<\/li>\n<\/ul>\n<\/li>\n Tax deductions for charitable donations.<\/b> Tax deductions are also available for charitable donations. How much of a deduction will depend on what you donate and to what cause. Services aren\u2019t tax deductible; however, expenses related to them may be. Goods that you can donate include:<\/p>\n Food.<\/b><\/p>\n<\/li>\n Non-food inventory.<\/b><\/p>\n<\/li>\n Intellectual property.<\/b><\/p>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n Having employees makes the tax situation of a small business<\/a> much more complicated. There are many more responsibilities involved when you have people who work for you. There are legal requirements that you have to follow.<\/p>\n These include.<\/p>\n Employment taxes.<\/b> As listed above, you\u2019ll need to make sure you pay social security, Medicare, and FUTA for your employees.<\/p>\n<\/li>\n\n
What Is an Employment Identification Number (EIN)?<\/h2>\n
\n
\n
\n
Types of Taxes for Small Businesses<\/h2>\n
\n
\n
\n
\n
\n
\n
Hiring Workers and Payroll<\/h2>\n
\n