| There's a lot more to taxes than just income taxes. | | | | the Indiana Department of Revenue. There will be a |
| When most small business owners think about taxes, | | | | similar agency in your state who you can contact to |
| they think about Federal income taxes. But there are | | | | find out the rules. |
| several other taxes that you need to know about. | | | | Local Taxes |
| Self-employment tax | | | | Some cities and school districts have local taxes that |
| If you've ever worked for someone else, you know | | | | you might have to pay. Some of these depend on |
| that social security and Medicare taxes get deducted | | | | your type of business. There might be additional sales |
| from your paycheck. When you're self-employed, you | | | | taxes, property taxes, innkeeper's taxes, or food and |
| don't actually get a paycheck. | | | | beverage taxes. |
| Here's what happens if you're a sole proprietor. | | | | Check with the authorities in your area for details. |
| Following the IRS rules and regulations for calculating | | | | Estimated taxes |
| income and expense, you report your results for the | | | | This is a subject that confuses many people. |
| year on your personal 1040 by filling out Schedule C. | | | | First, try to understand the reason that the estimated |
| Then you take the net profit and put it on Schedule SE | | | | payment system exists. Our system of Federal taxes |
| for self-employment tax. After a small deduction, you | | | | is a "pay as you go" system. When you think about it, |
| calculate 15.3 % as your self-employment tax. This is | | | | that makes sense. The government needs money all |
| double the rate of 7.65 % that's deducted from | | | | year long to pay for various things. |
| employee paychecks because as a sole proprietor | | | | When you work for someone else, taxes are withheld |
| you're both the employer and the employee so you | | | | from your paycheck each pay period, so the |
| have to pay both parts. | | | | government gets its money over the course of the |
| You get to take half of the amount of | | | | year. If you're a sole proprietor, this doesn't happen, so |
| self-employment tax as a deduction from your income | | | | you're expected to make estimated payments. |
| on the front of your 1040. This has the effect of | | | | As with many IRS rules, there are some exceptions, |
| reducing your taxable income. | | | | and some penalties if you don't pay enough or pay on |
| The self-employment tax itself goes on the back of | | | | time. There are some cases where you might not be |
| the 1040 in the section called Other Taxes on the line | | | | required to make estimated payments (and you won't |
| that says self-employment tax. For the 2006 filing year | | | | have a penalty if you don't), but it would still make |
| that was line 58. This tax gets added to your Federal | | | | sense to make them anyway, to avoid having to pay |
| income tax and any other taxes you owe and is paid | | | | a large amount on April 15th. |
| when you file your 1040. | | | | If you have another job in addition to your |
| If you (and/or your spouse on a joint return) have had | | | | self-employment, you can increase your Federal |
| Federal income tax withheld during the year that adds | | | | withholding on that job to cover the amount of the |
| up to more than your total taxes for the year (which | | | | estimated taxes that you would otherwise have to |
| includes self-employment tax), you'll still qualify for a | | | | pay. And if you're married and file a joint return and |
| refund. | | | | your spouse has wages from another job, he/she can |
| If your business is operated as a corporation and | | | | have additional Federal withholding taken out to cover |
| you're active in your business, you should receive W-2 | | | | the estimated payments. |
| wages and you won't be subject to self-employment | | | | Or, you can make quarterly payments using Form |
| tax on your earnings. Distributions from S corporations | | | | 1040-ES. You can also sign up to make the payments |
| are generally not subject to self-employment taxes. | | | | on-line. |
| If your business is operated as a partnership, you might | | | | You might also need to make estimated payments |
| have some items of income that are subject to | | | | towards your State taxes. |
| self-employment tax and some that are not. These | | | | Payroll taxes |
| items will be reported to you on a Schedule K-1 that is | | | | If you have employees, you'll need to pay various |
| part of the business tax return. | | | | Federal, State, and local payroll taxes. That subject will |
| Sales tax | | | | take another entire article to explain. The most |
| Many States have sales taxes. If you sell products to | | | | important thing you need to understand is that it's your |
| customers, you'll have to charge them sales tax and | | | | responsibility to find out what taxes your business has |
| pay it to the State. In some cases, digital downloads | | | | to pay. And that the laws vary from place to place |
| are considered products as far as the sales tax rules | | | | and by type of business. |
| are concerned and certain services might also be | | | | A good source of information is an accountant who |
| subject to sales tax. In Indiana, the rules are put out by | | | | specializes in consulting with small businesses. |