Small Business Taxes and Employees

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Small Business Taxes

Small Business Taxes and Employees

Employment Taxes are very complex. If you do them yourself, you are bound to make costly mistakes. It is advisable to have an outside firm manage employment taxes and paychecks. If the firm makes a mistake, it typically pays the penalty. (Verify this in your service contract.)

For your employees, you must withhold federal income tax and other earnings-related taxes from every check.

Before paying your employees
Your employees need to fill the federal W-4 (Employee’s Withholding Allowance Certificate) and I-9 (Employment Eligibility Verification) forms from the U.S. Immigration and Naturalization Service (INS).

You, or your filing company, must determine the right amount to deduct from your employees’ paychecks. State withholding tables are available from the New York State Department of Taxation and Finance, http://www.tax.state.ny.us

You are also required to withhold Social Security and Medicare taxes. Tables for these taxes can be found in the IRS Web site: http://www.irs.gov

As an employer, you are required to pay for Medicare and Social Security expenses. Moreover, depending on how long you have employed an individual, you will need to pay for that employee’s unemployment insurance. Many factors are taken into account when calculating these taxes including the size of the firm, date of hire, and balance on the unemployment insurance account.

Sales Tax
In New York, a small business needs to collect sales tax if it is selling a product or offering a service that is taxable. To learn if your business will need to charge New York sales tax, refer to Publication 750, available for download from the New York State Department of Taxation and Finance here.

Certificate of Authority
The process of getting a Sales Tax ID is called “obtaining a Certificate of Authority.” You have probably seen an example of one in the stores you shop at; generally, it is on the wall behind the cash register. To obtain the Certificate of Authority you will need form DTF-17 “Application for Registration as a Sales Tax Vendor.”
You can download this form here.

Income Taxes
Your earnings will be taxed according to your company’s business structure and income amount.

If your business is a sole proprietorship, you will report your business gains or losses on your personal income taxes. The form that you will need is your usual
IRS Form 1040 with a Schedule C, Profit or Loss from Business, attached (available at http://www.irs.gov).

For partnerships, you will also report the business earnings on your personal income tax return. The partnership must file an IRS form 1065, U.S. Return of Partnership Income, which defines each partner’s share of the profit or loss in the business, along with your return each year. Furthermore, each partner must make quarterly estimated tax payments each year.

If you incorporated your business as an S corporation, any business earnings are passed to you; therefore, you need to declare these earnings on your personal income taxes. If you set up is a Corporation, then you will have to file a separate return for your business.

For a single-owner LLC, you just need to submit a schedule C with your tax returns. A multi-owned LLC will need to file form 1065, U.S. Return of Partnership Income here.

Furthermore, the LLC members need to file IRS Schedule K-1, which breaks down each member’s shares of the business’s profits and losses. The LLC members must report their profit and loss information on their 1040, adding Schedule E here.

Property Taxes
Naturally, you will pay taxes on any real estate that your business owns. However, if you lease commercial property instead, you may still be required to pay the property taxes. If the lessor pays the taxes (named base-year taxes), then the lessor will pay an amount based on the amount paid the year before the lease agreement is signed, and the lessee will be responsible for any increment on those taxes going forward.

For more information on taxes and business expenses proceed to the next section. Common Business Expenses