Federal Business Taxes: Introduction
The form of business (i.e. sole proprietorship, partnership, corporation) you operate determines what federal taxes you must pay and how you pay them. The following are the four general types of federal taxes related to business:
- Income Tax
- Employment Tax
- Self-Employment Taxes
- Excise Tax
All businesses must pay federal income taxes. Some businesses are taxed as separate entities for income purposes, such as corporations or limited liability companies (LLCs). Other business's incomes are not taxed separately from the income(s) of their principal owner(s). For example, a sole proprietorship's income and expenses are included on the personal income tax return of the sole proprietor himself or herself.
Business income tax is a pay-as-you-go tax -- businesses usually must pay the tax as income is earned during the year. To compare, an employee usually has income tax withheld from his or her pay. As a business, you may be required to make estimated tax payments throughout the year (i.e. every three months). If you are not required to make estimated tax payments, you may pay any tax due when you file your return at the end of the tax year. For additional information refer to Publication 583, Starting a Business and Keeping Records.
When you have employees, you as the employer have certain employment tax responsibilities that you must pay and forms you must file. Employment taxes include the following:
- Social security and Medicare taxes
- Federal income tax withholding
- Federal unemployment (FUTA) tax
Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. Your payments of SE tax contribute to your coverage under the social security system. Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits.
Excise taxes are taxes paid when purchases are made on a specific good, such as gasoline. Excise taxes are often included in the price of the product. There are also excise taxes on activities, such as on wagering or on highway usage by trucks. Excise Tax has several general excise tax programs. One of the major components of the excise program is motor fuel.