All businesses except those that file as partnerships have to file an annual income tax return. The federal income tax for businesses is a pay-as-you-go type of tax, which means you will be paying it all year long rather than in one lump sum at the end of the year. You must pay the income tax as your business receives income throughout the year. You withhold income tax on employee paychecks, but if you don't pay enough through this method or you don't pay it through this method at all, you may have to pay estimated tax instead.
Estimated tax is the method of paying taxes on income that is not subject to withholdings. This can come from self-employment, interest, dividends, or any other income, as well as if you don't pay enough through withholdings. If you expect to owe taxes of $1000 or more when it is time to file your business's income tax return, then you must pay estimated tax. Estimated tax is paid four times throughout the tax year, and each period has a specific payment due date. If you do not pay enough estimated tax by the due date, you can be subject to penalties, even if you get a return at the end of the year.
When you are self-employed, you need to pay the self-employment tax. This tax covers your contributions to Medicare and social security so you can have the same benefits when you retire as an employee working for a corporation. You must pay self-employment tax if you make more than $400 working for yourself. There are exceptions from the self-employment tax, but see a tax specialist to see if you fall under this category.
If your business employs others, you are responsible for paying employment taxes. Employment tax includes Medicare and social security taxes, Federal income tax withholdings from employee paychecks, and Federal Unemployment tax. The employment tax must be reported on a quarterly basis, and paid either monthly or semi-weekly depending on how much you reported in the previous tax year. Failure to pay your employment taxes on time results in heavy fines with interest depending on how late you pay it. Also included in employment tax is what you have to pay on the state level. Each state differs in what taxes are required. Be sure to contact your local tax representative to find out what you are responsible for paying.
You may have to pay an excise tax depending on what business you are in. Excise tax includes the following:
If your business falls under any of these categories or any others outlined by the IRS, you will be responsible for excise tax. To see if your business has to pay a federal excise tax, be sure to contact your local tax representative.