Business Income Tax

What are Business Income Taxes?

Every business except partnerships files an annual business income tax return. Moreover, the IRS expects small businesses, sole proprietors and large corporations to file business tax returns.

However, partnerships instead file an annual information return. Subsequently, each partner reports or “passes through” profits and losses on their own individual tax returns. This “pass through” business is the dominant business structure in America. In other words, they are not subject to corporate taxes. Instead, profits earned are “passed through” the business and reported on the business owners’ personal income taxes. This eliminates the two layers of taxes that corporations pay: corporate level and shareholder level. Moreover, business losses are reported on the business owners’ personal income tax returns.

Furthermore, partnerships (LLCs), sole proprietorships and S corporations pay self-employment taxes and state and local taxes. However, “pass through” businesses are not necessarily small businesses. Remarkably, they can employ thousands of people and generate billions in revenue.

Tax credits reduce business income tax due

Business tax credits reduce the amount of business income tax due. Such credits include:

  • use of environmentally safe fuels
  • employer’s paying for the employees’ Family and Medical Leave
  • prior years’ tax credits carried over to the current year
  • using current available tax credits

Business expenses must be a commonly accepted expense for the trade or business (ordinary). Moreover, these expenses must be helpful and appropriate (necessary) for the trade or business to be deductible. Most importantly, not every business expense can be deducted. Expenses such as office supplies or the purchase of raw materials in the manufacturing of a product can be deductible. NOTE: The payment of business income taxes is not deductible.

Business type determines tax

  • The type of business determines the type and payment of taxes. How the business is organized determines the forms used. Most businesses need a Federal Tax ID Number or Employer Identification Number (EIN) for the identification of taxes. Furthermore, the EIN tracks tax reports to the Internal Revenue Service (IRS).

The Federal income tax is paid as money is earned, otherwise known as paying estimated taxes. Not paying enough estimated taxes may require paying them throughout the year, instead of quarterly. Furthermore, businesses must pay business income taxes as well as other taxes:

  • self-employment tax (if applicable)
  • estimated taxes
  • Social Security and Medicare taxes
  • income tax withholding
  • federal unemployment tax (FUTA)
  • excise taxes

Moreover, the IRS publishes tax tables for employers to calculate each of these taxes. Furthermore, a business with many employees may employ a tax preparation professional tasked with this job. In addition, this ensures accuracy and allows the owners to focus more on their business. Tax professionals at Bullseye Tax Relief are such professionals.

Self-employment tax

A self-employment tax (SE tax) is a Social Security and Medicare tax for those individuals who work for themselves. In other words, these payments contribute to the individual’s coverage under the social security system. This system provides the individual with retirement benefits, survivor benefits, disability benefits and hospital insurance (Medicare) benefits. The following individuals must pay the SE tax and file the corresponding form if:

Businesses must also pay certain employment taxes if they collect employees’:

Excise taxes are due if the business does any of the following:

Excise tax

Excise taxes consist of several broad categories of taxes.

Additionally, excise taxes are paid throughout the year through withholding amounts from a paycheck or payment of estimated taxes. Consequently, penalties and interest incur through the improper reporting and/or payment of taxes. This is true even if the business is owed a refund at the end of the year. Businesses and those who are self-employed must pay estimated taxes throughout the year. Individuals who receive salaries and wages do not have to pay estimated tax payments. Instead, their employer withholds taxes from their earnings. Moreover, the employer then pays it to the IRS and/or State throughout the year.

Business Income Tax

Some Examples and Information

Excise taxes are imposed on:

  • vehicles with a taxable gross weight of 55,000 pounds or more, such as certain trucks, buses and truck trailers used on public highways
  • airline tickets, tires, indoor tanning and tobacco
  • imported goods
  • goods sold by a manufacturer or retailer
  • goods used by the manufacturer or consumer
  • on the first retail sale of heavy trucks, tractors and trailers
  • on the sale or use of a variety of different manufacturer’s articles
Facts – excise taxes:
  • include environmental taxes, fuel taxes, air transportation taxes, and communications taxes
  • may be passed onto the consumer
  • are filed quarterly
  • are deposited into trust funds by the government for projects that are related to a good or service, such as airport or highway improvements

Next Step:

The calculation and reporting of business income tax are very complex and complicated. Mistakes are costly in both time and money. Hiring a tax expert can alleviate the stress and produce better results than attempting the process yourself. Call us today for expert assistance in determining the best options for you and your business. Visit our tax resolution page for more services.

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