Opening up the business of your choice is not a walk in the park. It is not enough that you have the necessary capital to invest in the type of shop or store that you have been planning for. Aside from knowing the location for your new business, it’s of great importance that you are knowledgeable of the laws of the state where you live, as well as the licenses and taxes needed in order for you to conduct and pursue the corporation or enterprise desired.
Government agencies issue permits known as Business Licenses, so that you can operate and conduct your business no matter the size. These licenses serve as an authorization issued by the local government for starting up the business. In certain cases, conducting a business in a single location requires various licenses, registrations and certifications.
The factors used to determine what kind of licenses you will need are the business’s primary and secondary purposes of activities, the physical location or the address, number of employees to be hired, the type of business ownership, whether, a sole proprietorship or a partnership. In the absence of the required licenses, the government has the power or authority to fine, penalize or close down a business establishment.
Checklist For Starting Up a Business
This list gives you the basic procedures as you start up a business and each state has additional requirements in operating a business venture, so check the website of your state for additional instructions and materials.
Ø Apply for an Employer Identification Number (EIN) if applicable
Ø Select a business structure
Ø Choose a tax year
Ø If you have employees, let them fill out Form I-9 (PDF) and Form W-4 (PDF)
Ø Pay Your business taxes
Taxes and Licenses vary based on the type and size of business establishment that
you are planning to open. You must first determine what form of business entity to establish because the form of business will determine which income tax return form you file. The types or forms of businesses are the sole proprietorship, partnership, corporation, Limited Liability Company, LLC and S corporation.
Types of Business Taxes Required
Your form of business will determine the type of taxes you are to pay and how you will pay them. These are the four general types of business taxes required by law:
Ø Income Tax- Businesses, except partnership must file an annual income tax return because the latter shall file an information return. The document form that a business owner will use depends on how the business is organized. You must pay this tax as you earn or receive income during the year.
Ø Estimated Tax – is the method used to pay tax on income that is not subject to withholding. Included in this kind of Tax are income from self-employment, interest, dividends, alimony, and rent, gains from the sale of assets, prizes and awards. One may also be required to pay estimated tax if the amount of income tax withheld from the salary, pension or other income is not enough.
Ø Self-Employment Tax- is a social security and Medicare tax for individuals who work for themselves. This contributes to your coverage under the social security system, which provides retirement benefits, disability benefits, survivor benefits and hospital insurance.
Ø Employment Taxes- in this instant, the employer has certain employment tax responsibilities to pay and forms to file on behalf of their employees. The employment tax covers the following:
· Social Security and Medicare taxes
· Federal Income Tax Withholding
· Federal Unemployment Tax
Ø Excise Tax- this states the excise taxes one has to pay and forms to file if you have any of the following:
· Manufacture or sell certain products
· Operate certain kinds of businesses
· Use Various kinds of equipment, facilities, or products
· Receive payment for certain services
These are only a few of the required steps and methods that a new business owner has to go through to start a new business venture.
Corporations and Taxes
Corporations are subject to a federal Alternative Minimum Tax and alternative state taxes. Corporate tax, as provided in the laws, is regularly and consistently imposed in the United States at the federal and some local levels on the income of entities for tax purposes as corporations. Federal tax rates on corporate taxable income are currently at 21%.
State and local taxes and rules differ by authority and jurisdiction. Taxable income may vary from book income, as to the timing of income and tax deductions and the other is to what is taxable. Similar to individuals, corporations are required to file tax returns every year. They must make quarterly payments while other organized groups of corporations shall file a consolidated return.
However, a number of corporate transactions are not to be taxed such as some types of mergers, acquisitions, and liquidations. Moreover, shareholders of a corporation are taxed on dividends distributed by the corporation.
In addition, corporations may be subject to foreign income taxes, and may be granted a foreign tax credit for such taxes. Shareholders of most corporations are not taxed directly on corporate income, but must pay tax on dividends paid by the corporation. However, as required by the laws, shareholders of S Corporations and mutual funds are taxed currently on corporate income, and do not pay tax on dividends.
As a matter of statistics, the average corporate tax rate in 2011 dipped to 12.1%, its lowest level since World War I and was even as high as 52.80% in 1968.
For professional advice and information on how to best file your business taxes, ROSAVICH & ASSOCIATES, INC tax preparers are available to help you & provide you with that information.
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