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Ah, yes. It’s tax time. The worry is in the air, along with anxiety and fret.
As individuals, we all look forward to tax forms and audits about as much as
root canals. But as a business owner, you may pay quarterly, you may have all
kinds of deductions and expenses to cloud the mix, and you may feel like moving
to Mexico. In this series, we’ll take a brief look at the types of taxes
business owners pay, and additional tips when it comes to making sure you
understand home-office deductions.
First, let’s talk about types of taxes. The form of business you operate will
dictate what taxes you must pay and the manner in which you pay them. According
to the Internal Revenue Service, there are four general types of taxes as they
relate to business: income tax, self-employment tax, employment tax, and excise
tax.
Income Tax. Unless you’re in a partnership, all businesses
must file an annual income tax return (partnerships file an information return).
The federal income tax is a pay-as-you-go tax. You must pay the tax as you earn
or receive income during the year.
An employee usually has income tax withheld from his or her pay. If you
do not pay your tax through withholding, or do not pay enough tax that way, you
might have to pay estimated taxes. If you are not required to make
estimated tax payments, you may pay any tax due when you file your return.
You may be required to make regular payments of estimated taxes during the
year (estimated tax), including self-employment tax, which we will discuss in
the next part of this series.
Source: Internal Revenue Service
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