No matter when you decide to start your new business, you should look to make certain you have a thorough understanding of the different taxes that must be paid. There are three different forms of taxes that need to be paid by any business owner, which are local, state, and federal taxes each business owner should be aware of. Among the commonly paid taxes that can be enjoyed include sales and use tax that are often charged at the local and state level. Many different levels of taxation need to be paid with 45 states imposing a sales tax at state-level and 37 that allow local governments to levy their sales and use taxes, according to the Tax Policy Center.
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Where to begin?
The first step to undertake when you are considering opening your business or are looking to determine how your business will stay on the right side of tax laws. When you are about to start selling your products or looking to establish a new small business you should make sure you know which tax year you are in.
There are three tax options when it comes to understanding your taxation year, including:
- The calendar year
- A short calendar year
- A fiscal year that does not end in December
One of the most common issues facing the people of the U.S. is knowing when you need to pay your taxes. Every business and individual needs to be aware of when their tax year ends to make sure your taxes are paid on time. Making sure your bookkeeping is up to date and the correct level of taxes are paid at the end of each taxation period will make it easy for you to keep track of your sales and use tax.
State-Level Taxes
At the state level, the best option to make sure every individual business understands their taxation requirements is to contact the state authorities to classify the taxes that need to be paid. In terms of the state-level taxes, the two most common taxes that need to be paid are sales taxes and employment taxes.
The state taxation authority is a good starting point because every individual needs to be aware of their taxation responsibilities. If the business is operating as a corporation the owners are taxed separately from their company. However, if the owner of the business is operating as a sole proprietor, they will pay personal and business taxes from the same forms filed with the local, state, and federal taxation authorities.
Understanding the Rate of State Sales Tax
One of the most difficult aspects of understanding local and state sales tax is the varying rates of taxation that are levied across the U.S. State sales taxes are not charged in five states which means local governments need to be contacted to understand the level of sales taxes that can be charged.
The sales taxes charged across the U.S. vary largely with the state of Colorado lowering its sales taxes to just over two percent in 2020. The highest level of state taxes charged is found in California where taxes are charged at a rate of 7.3 percent. The remainder of the states charging sales taxes does so at a rate of between four and seven percent, in general.
Federal Taxes are Different
There are many areas of responsibility for those who are looking to make payments through federal taxes. Every business in the U.S. will face some form of federal taxation including income taxes that are paid on every dollar earned by your business, the Government of the U.S. reports. Partnerships are not responsible for paying income tax with each member of an individual partnership determining their taxes on a personal tax return.
Along with income taxes, most employers will have to make contributions to the taxes paid to the U.S. Government. These taxes are known as Employment Taxes that are paid to make contributions to Social Security and Medicare, among other government agencies.
Excise Taxes must be Considered
Alongside sales and use tax, it is possible that a company has to pay excise taxes that are charged on specific items, products, and equipment. These taxes will be levied on those companies that fit into the online business sector.
Online businesses need to pay taxes in the same way as those operating out of a physical brick and mortar location. The U.S. Small Business Agency explains the taxation agencies of the U.S. at local, state, and federal levels will be able to advise every business owner about the taxes they need to pay each year for their online business.
Tax Connex via FoxChronicle.com
