Small business owners need to manage four tax categories: income tax with quarterly payments, property tax on buildings and assets, sales tax collected from customers, and payroll taxes. Rates and rules vary by location, and mistakes can trigger penalties. A payroll service like ADP helps avoid costly errors.
What are the taxes small business owners need to know about? So the first one comes to mind, income tax. Everyone's familiar with this. Once a year, you file a tax return either for your business and/or your personal. You have things like LLCs, partnerships, S corps, C corps, those all have a separate tax filing. If you're a sole proprietor, your business activity goes on your personal return. These income tax returns are going to cover your federal income tax, there's usually a state income tax that happens as a byproduct of that, and you may get a request from your accountant to make quarterly estimated income tax payments as a prepayment for your income tax for the upcoming year. We have some articles and blog posts on if you look— if you're looking to do that yourself, but most people are going to pay an accountant, and a good accountant will be able to handle the income tax filing for you. Another one is property tax. So we're familiar with if I own a house, I have a mortgage, I got a property tax. If I have a commercial building, right, mortgage, oh, property tax. Sometimes what's often overlooked is what they call personal property tax, which relates to assets you use in the business. Your county will often charge a tax Because you're using assets in your business like a desk or chairs or computer equipment. Yeah, isn't this great? You buy it, you pay sales tax on it, and then because you're using it in your business, just because you're using it in your business, your county or city makes you pay an additional tax just because you're using it in your business. I can't tell you what services you actually get from your local government, Because you are using, because you're paying them for the right to use something you own in your business. I don't know, but something that has to happen. You can get penalized if you don't do it. Many states do have what they call an exemption limit. So if I'm say under $10,000 of assets in my business, I just have to file an exempt return every year. I don't actually have to claim my assets. But You'll have to check for your local rules on if anything's exempt and how to file and those things. Sales tax I mentioned. So the interesting, interesting thing about sales tax, not actually your tax, it's your customer's tax that the government obligates you to collect on their behalf. And if you don't collect it on their behalf, You get penalized, not them. And the government looks at this, if you file it wrong, as theft, because it should have been like the client should have paid for it. And if they didn't pay— and if they did pay for it, but then you don't send that into the state, and they feel like you're stealing their money. Every state is different. It's very important that you understand the rules for your local area. And even sales tax rates vary from county to county, city to city. Sometimes you have a county tax, sometimes you have a city tax, sometimes you have an additional tax. Like, there could be a variety of taxes that make up your all-encompassing sales tax number. If you sell products or services, sometimes those are subject to sales tax and sometimes they're not. You're going to want to make sure you understand Your rules of what you're selling wherever you're located and where you're selling things so that you don't get in trouble. Because unfortunately, while this isn't your actual tax, it is your burden that the government puts on you. And then the last tax I'll talk about is employment tax. I'll just start with, if you have payroll W-2 employees, I strongly recommend using a payroll company. Now, we don't do live payroll for clients. We will do payroll if it's simple and it's a— the owner is the only employee of their business. But we have a great relationship with ADP and we interface with ADP so that we can help our clients if they have any questions or issues with their payroll. But you do not want to do this yourself. I promise you, every client I've ever had— That's all-encompassing. And I usually don't use absolutes like that. Every client I've ever had who's done their own payroll will make mistakes. I mean, we have a— I had a client years ago that was in a business where they manufactured the product that they sold, and they did their own payroll, and they refused year after year to bring on a payroll service. Even after I showed them the penalties they were paying because they were messing up on their payroll filings was more than what they would pay a payroll company to do the payroll filings themselves. So don't, don't mess with this one, guys. Get a good payroll company. If you want a resource, let us know. If you have any questions about these, feel free to reach out to us, but these are the most common and important Taxes that affect a small business owner: income tax, property tax including personal property tax, sales tax, and employment taxes. So remember, the government doesn't care if you understand this or don't. They're holding you legally as if you do understand, so they are effectively out to get you if you make a mistake. So don't make a mistake. Do it the right way.
