3 Taxes You Must Pay When Starting a Small Business

Karleia Steiner

January 05, 2015

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There is an old saying that goes, “I only have to do two things in life: die and pay taxes…” Well, if you are going to have a start-up business, our article below covers the three main taxes you can count on having to pay.

Federal Income Tax from the Internal Revenue Service

As a start-up or business entity at any level, you will have to file a Schedule C form, otherwise known as a "Profit or Loss from Business Activities." This Schedule C goes right alongside of your standard 1040 you normally file each year. Depending on your filing status, sole proprietorship, corporation or LLC, and the information you provide from your Schedule C, you are subject to federal and state taxes--depending on the loss or profit gained. If you have a legal entity status as a corporation, corporate taxes may be applicable as well.

Self-Employment Tax

Besides the standard income tax, small business owners may be subject to a self-employment tax. These cover Social Security/Medicare costs you would normally have to pay if you were under the employ of another company. The total tax you need to pay is calculated as a percentage of net earnings from your self-employed revenues. This can be simply calculated by filing an IRS form Schedule SE. If you hire employees, an employment tax must also be paid for each employee. But it doesn’t end there. As a business owner, you are also subject to pay a part of every employee’s FICA and Medicare tax expenses.

Sales Tax

If you operate a retail entity, there may be taxes to your state and local municipality that are also due. Some municipalities commonly require that local taxes be paid to the municipality where you conduct your business. This tax will be collected by charging your customers the state required amount of taxes for a product. From this point on, it becomes your responsibility to pay the amount directly to whatever tax authority demands it. However, before you can receive tax monies from people and pay the actual taxes, you need to fill out a sales tax application, otherwise known as a "Certificate of Tax Authority." Federal income taxes, self-employment taxes or state and local taxes all lay claim to your business treasury.

All this will demand more planning for you as a business owner just to keep up with tax payments, bookkeeping and/or any legal situations that may arise. That said, it is always best to have professionals such as Gittens & Associates at your side when launching a start-up business. Despite the challenges, the desire for being in business for oneself has always been a just tradeoff for many people and well worth the tax burdens.