A business tax is a tax imposed on the income or profits of a business. Businesses are taxed at different levels, including federal, state, and municipal. Each level has its own set of rules and rates.
To further delve into the types of taxes, we have regressive taxes that fall more heavily on lower-income households. Proportional taxes consider the size of a business and its revenue level. Progressive taxes are those that increase as income increases.
To help you understand the ins and outs of business taxes, we have compiled some information about them below.
Table of Contents
List of Business Tax
Here we’ll discuss some types of business taxes that may help you out before or after starting your business.
Income Taxes
The income tax is an income tax. Many business entities are subject to entity-level taxation on their income. Individual income is taxed at both entity and individual levels. In addition to these two sources of income, governments also collect taxes on long-term capital gains and losses.
Value Added Tax (VAT)
Value Added Tax is the tax levied on goods and services purchased by a business. It’s collected at the point of sale by the seller or agent and passed on to the government.
VAT is charged at 20% on most goods and services provided by businesses in every country, with some exceptions. It means that VAT is added automatically to all products that are sold.
The tax is collected by the government and then passed to local authorities for distribution. The money can then be spent on public services, including health care, education, and social welfare programs.
Employment Taxes
Payroll taxes are the taxes that are withheld from your employees’ paychecks. The business, not the employee, pays employer taxes. Social security and Medicare taxes are also withheld from employees’ salaries, but they’re called FICA (Federal Insurance Contributions Act) contributions because they were created under the old laws.
Excise Taxes
Excise taxes are levied on selling, transferring, or using specific goods and services. These are often called “hidden taxes” because they are not included in your product or service price.
It’s important to note that excise taxes apply only when you sell something—they don’t affect how much money you make from selling it (though they may affect how much your customers pay).
Sales Tax
Sales tax is a fairly straightforward concept. It’s the money you pay to the government when you purchase something, and your state or local government collects it. The IRS limits how much sales tax can be charged for each item and service purchased in the United States.
There are two types of sales taxes: federal and state (or local). Federal taxes apply only to certain types of transactions, while state and local governments charge different rates based on their location.
Several ways to File taxes for Businesses
Businesses can file their taxes in several ways. Here are two common ones:
A Schedule C
It’s a standard form for small businesses. Business owners use it to report their income and expenses on their tax returns. You’ll use this form if you’re self-employed or work for someone else who pays you with a W-2 form.
Through a Schedule E
It’s the most common form for medium-sized businesses. It reports your business income, losses, and deductions on your tax returns. You’ll use this form if you’re self-employed or work for someone else who pays you with a W-2 form but doesn’t have enough employees to claim as an employee.
Know Your Taxes!
The business tax is a complicated topic. However, it is essential to remember that every business has some tax responsibility, so it’s necessary to understand their differences. Understanding business taxes can be a challenge. Let Boom Tax help you do your Tax Returns