Starting a business isn’t an easy task, and neither is tax planning. Entrepreneurs in the United States must pay numerous local and national taxes, and very few business owners enjoy doing the math. Therefore, it’s always advisable to seek the help of an accountant or a CPA. In all cases, business owners are required to file and pay those taxes monthly and annually.
In 2023, the tax season began in January, and the time to file returns was in April. Knowing these dates is important to avoid legal problems or fines. With the assistance of a CPA, it’s easier to organize the tax planning and financial situation of the company. Everyone can hire a trusted accountant at Evans Sternau and can also find more services to help them address their issues.
What Are Business Taxes?
The US tax system encompasses more than 97 tax categories, but the most significant ones include: Federal Income Tax, State Income Tax, Sales Tax and Tax Withholding. Tax rates and regulations may change based on factors such as:
- The state in which the company is registered
- The business structure, whether it’s a Limited Liability Company (LLC) or a Corporation.
- The industry the company operates within.
Tax laws are complex and change over time. Therefore, it is advisable for companies to seek national tax advisory service from accountants or CPAs to ensure accurate and efficient compliance with all legal obligations. Before delving into how to enhance your tax strategy, it’s essential to understand the fundamental characteristics of these taxes.
1. Corporate Income Tax
Corporations are obligated to pay a tax on their net income. The tax rate varies depending on the income and size of each business.
This tax is payable to the Internal Revenue Service (IRS) based on the company’s profits. For LLC companies, this tax isn’t paid at the company level. The statement is filed by the partners, but not as a partnership. In LLCs, benefits are distributed among partners who are taxed at rates ranging from 10% to 37%, depending on their share in the company’s profits.
2. State Income Taxes
Many businesses are subject to state taxes, with the rate and regulations changing by the state where the business is registered.
For instance, in Florida, this tax is not levied on individuals; however, corporations must pay 4.458% annually. In California, individuals pay between 1% and 12.3% in taxes, while corporations pay between 4% and 9%.
3. Capital Gains Tax
This tax is applied to companies when they sell assets, such as property or investments, at a price higher than the original cost.
4. Withholding tax
This tax is applicable to foreigners conducting business in the US. Every quarter, a predetermined amount is collected in advance to ensure that at the end of the tax year, the individual will file their tax return and settle all outstanding debts. The IRS will issue a refund for any excess payments made.
5. Social Security and Medicare tax
Business owners are required to pay Social Security and Medicare taxes on the wages and salaries of their employees.
6. Payroll Tax
Additionally, they are responsible for payroll taxes for their employees, encompassing Social Security taxes, Medicare taxes, and federal unemployment insurance tax.
7. Sales and use tax
Businesses may be subject to sales and use tax based on the number of transactions of goods and services they perform.
If the business engages in taxable operations, it’s essential to register as a sales and use tax dealer before commencing operations to obtain an annual sales tax resale certificate.
Tips to Improve Your Tax Strategy
Strategic tax planning is essential for all companies. It involves employing strategies to reduce the tax burden, boost profitability, and ensure compliance with tax laws and regulations.
Tip 1: Hire accountants, CPAs or receive financial advice. Experts help entrepreneurs in submitting documents on time, maintaining clear accounts, and keeping accounting records transparent.
Tip 2: To enhance business tax strategy, it’s prudent to understand the local laws, regulations, and taxes of each state before launching a business, as they can change significantly. Analyzing the rules and conditions of each state is essential for selecting the most favorable location to establish or expand a business.
Tip 3: Select the appropriate business structure for your enterprise, whether it’s an LLC, S corporation, or C corporation. Each structure comes with distinct advantages and disadvantages, which impact your ability to minimize the tax burden effectively.
Tip 4: Implement long-term tax planning to anticipate future tax-related expenses. Take into consideration potential changes in tax laws and align your financial goals with your tax strategies.
Tip 5: Maintain accurate and up-to-date financial records to monitor income, expenses, saving opportunities, and tax compliance, which proves essential in case of audits.
CPAs are the key for the company to have a balanced and legal financial situation. Evans Sternau is among the firms that provide comprehensive accounting services and offer the expertise of CPAs specialized to assisting their clients.