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By Milt Wright and Anita Lee Wright
Milt Wright & Associates

Resources Needed to Start Your Own Business Cont.

General Types of Business Taxes

Income Tax
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 tax. If you are not required to make estimated tax payments, you may pay any tax due when you file your return.

Internal Revenue Service
www.irs.gov

Self Employment Tax
Self-employment tax is simply a shorter way of saying Social Security and Medicare taxes for a self-employed person. However, it is a significantly larger amount than what comes out of your paycheck as an employee, so be prepared for the shock. As an employee, 7.65% is deducted from your pay. The amount you will pay is almost twice what you pay as an employee. The reason for this is that your employer matches what comes out of your check so that 15.3% actually gets paid in to the Social Security Administration on your behalf. When you are self-employed, you are essentially both the employee and the employer. Since there is no one else to pay the other half for you, you get to pay them both. You do get a couple of breaks so that the amount is not quite double. We’ll get to that in the computation section.

Internal Revenue Service
www.irs.gov

Employment Taxes
Small business owners often have great responsibilities while operating and managing a business. Before you become an employer and hire employees, you need a Federal Employer Identification Number. If you have employees, you are responsible for several federal, state, and local taxes. As an employer, you must withhold.
Federal income tax, Social Security and Medicare taxes, and Federal unemployment tax act (FUTA).
www.irs.gov/businesses/small/content/0,,id=98942,00.html

Excise Taxes
Environmental taxes, Communications and air transportation taxes Fuel taxes, Tax on the first retail sale of heavy trucks, trailers, and tractors, Luxury tax on passenger cars, Manufacturers’ taxes on the sale or use of a variety of different articles.

IRS Small Business Taxes Website www.irs.gov/businesses/small/article/0,,id=98966,00.html

Tax Credits
An employer may be eligible for a tax credit of up to $8,500 if the employee is a member of a designated target group. This group includes welfare recipients, veterans receiving food stamps, ex-felons, high risk youth, and vocational rehabilitation referrals.
www.edd.ca.gov

*The Build WorkSource web site provides material on topics of interest to businesses. It is not intended as legal advice or to answer specific legal or employment problems. The information presented in the Build WorkSource web site is from many sources therefore there can be no warranty or responsibility as to the accuracy, originality or completeness. Build WorkSource is not engaged in rendering legal or other professional counsel.

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