If you’re planning to start your own business, you will have to deal with a lot of state, federal, and local requirements. It’s a somewhat complicated system of regulations you’re required to comply with to make sure you’re being taxed correctly. The rules of taxation vary depending on where your business operates and the industry you are in. Here are the most important factors that affect the tax laws that apply to your business:
Your business structure plays a huge role on how you’ll be taxed, so this goes first. The corresponding tax entity next comes into play depending on your business structure (e.g., C-corp, S-corp, LLC, etc.). Being an LLC and S-corp provides a degree of protection from certain liabilities, and they are preferred more because of having advantages over tax cost reduction. Either way, getting professional legal advice is still the right thing to do so that you won’t mess up.
Wage and taxes
You will be required to pay federal and state taxes on the wages you receive. That said, the business is required to file both federal and state withholding taxes. This process involves taking income tax, FICA and FUTA out of paychecks; the employer then has to match the FICA withholding. Also, in most states, the business is required to pay state unemployment taxes. If you wish to skip the math, then employ a payroll service, and they’ll do the calculations on your behalf.
If you happen to be an LLC, business profit will be shared between the owners accordingly, and you will each have to pay your taxes. If the business earns enough though, you’ll have to file quarterly withholdings or suffer a penalty when the year ends.
If your business involves selling products rather than providing services, you’ll have to pay sales tax. Just be sure to adequately distinguish your business, if you really are selling or providing services as this could be confusing. This happens a lot with software and designing related companies.
Most if not all labor laws also apply to companies with even one employee. It’s a complex topic with a whole list of factors determining what applies and what doesn’t.
Also, check to see if your county or city as they may probably have some tax requirements as well. In most cases, you’ll have to get a business license because you can’t open a bank account without one. Some localities would even require companies to pay an additional tax on the revenue. And you may also have to file and pay taxes on the assets of the business.
An important financial matter any entrepreneur would be concerned about, are tax payments and rebates. Anything done incorrectly can lead to fees and penalties. Therefore, it is imperative to be familiar with the tax laws that apply to your business. It’s all obviously a lot to take in, the information as well as the amount of taxes you’re required to pay, but a consultation with a legal advisor helps in making sure you’re only filing the right ones.