Tax Topics for Small Business Week – the other taxes

The 2018 Small Business Week started April 29, 2018 and runs through May 5, 2018. This annual event, hosted by the U.S. Small Business Administration, is the celebration of the contributions by entrepreneurs and small business owners.

I wanted to continue my series of posts related to the 2018 Small Business Week with some information about the taxes that aren’t as familiar to entrepreneurs when they start their first business. For better or for worse, almost everyone is familiar with the annual income tax return that gets filed with the IRS. Some people also have a state income tax return that has to be filed annually, depending on the state where you live and/or work. However, there are a whole bunch of other taxes that business owners need to be aware of that aren’t well-known if you haven’t run your own business before. Here is a brief description of the three most common “other taxes” that you need to be aware of when you start your new business.

Payroll Taxes

Let’s start out with payroll taxes because you’re actually familiar with them, even if you haven’t ever filed a payroll tax return before. If you have received a paycheck from an employer, then you’ve been on the receiving end of payroll taxes. Employers are required to withhold taxes from a worker’s paycheck, and now that you’re the employer, you’ll have to start filing payroll tax returns.

This is the part where I get onto my soapbox and say that you really should hire a professional to take care of these taxes. Whether you outsource these taxes or bring someone in-house to process these payments and returns, please get competent and professional assistance. There are significant and sever penalties for messing this up and you don’t want to get on the wrong side of the taxing authority, even if it was a careless or unintentional mistake.

There are many taxes that fall under the Payroll Taxes umbrella and you can generally group them into two categories. The first are the withholding taxes. These are the taxes that the employer withholds from their employees, such as federal income tax, social security, medicare, and state income tax (if applicable). These should be the ones you are already familiar with. The second category of taxes are employer taxes. These taxes include the employers portion of social security and medicare taxes. They also include federal unemployment and state unemployment taxes.

The primary reason why you should hire help to manage these taxes is that there many different forms that have to be filed and they can have different due dates, depending on the size of your payroll. The type of assistance you need will depend on payroll variations such as how many employees you have, how often you pay your employees, and how may different payroll categories that you have. There are a number of options that you can use to get assistance. From the big companies like ADP to small local firms, you have a wide variety of choices so check around with your peers in your community to get referrals. If you happen to be in Austin, TX, check with me and I can give you a few options.

Sales and Use Taxes

These taxes seem easier than payroll taxes when you first look at them, but don’t be deceived, they can get complicated quickly. These taxes are assessed by the state and, sometimes, the local jurisdiction, but typically you have one form and make one payment that cover both the state and local part of the tax. The complications that arise are because the tax rate and what is taxable changes based on the location that the transaction take place and the type of product or service that is being sold.

When it comes to location, if you have a fixed location and all your sales occur in that location, it can be easy to figure out the state and local tax rates. However, if your sales occur in multiple locations, it can get difficult to figure out the correct rate to apply for the sales tax once you cross jurisdictional boundaries. For example, a sale in Austin, TX, could have a different rate than a sale in Round Rock, TX, which is a neighboring city.

There is also a wrinkle in that different jurisdiction can tax items differently, or perhaps even exclude some items from sales tax altogether. This is especially true for items that can be lumped into “necessities” (e.g., foods and toiletries) which can have widely different and unexpected sales tax treatments when you cross a jurisdictional line. These jurisdictional irregularities don’t even include the complications that come from online sales.

Online sales tax is currently a hot topic in the tax world. The Supreme Court recently heard arguments on this issue and might give us some more clarification when the issue their ruling. I’m not even going to speculate on the outcome but it is definitely something we’re all keeping our eyes out for. This is another area where it really will benefit you to talk to your tax professional at the beginning of your business and potentially bring in sales tax experts to make sure you get a system set up correctly to calculate the tax and make payments to the taxing authorities.

Property Taxes

Property taxes are assessed on the property that you own. Here in Texas, individuals typically only pay property taxes on their home and any other real property that they own. In some states, individuals pay property taxes on their real property and their personal property. If you’re not used to paying property taxes on your personal property then it can get confusing when you start a business and have to start paying these taxes.

You are going to want to talk with you accountant about these taxes to make sure you’re registered in the correct jurisdiction and get your annual property tax rendition filed correctly. Depending on your jurisdiction and the amount property in your business, you might be able to take care of this tax on your own once you get guidance from your tax professional.

I know these taxes can all be confusing when you are just getting started but a good tax professional should be able to explain the details of each tax and how it applies to your specific situation. There are professionals who specialize in each of the different tax areas so you might even need to consult with a different professional for each type of tax. If you think of it like a medical example, your income tax professional is like your general practitioner. This is the person you go to for most questions and then, as your business gets more complicated, they will start referring you to the correct specialist that can answer your questions and keep you on the right track.

With a little help, these taxes are all manageable and should not be a deterrent to having a successful small business, so don’t let any of these taxes keep you from following your dream to be a small business owner.