Income Tax: Regardless of the type of business you have (corporation, partnership, LLC, LLP, sole proprietorship, etc.) in most cases you are obligated to pay income tax on the profit your company earns. There are exceptions to this rule, such as not-for-profit companies which, in theory, would not earn a profit. There are also tax laws that allow you to “carry-back” and “carry-forward” losses in a current year to offset profits in other years, effectively canceling out those profits and eliminating the taxes. However, the most likely scenario is that income taxes will be paid on the profits for the year they are earned.
The type of company you have effects how you will be paying your income tax. Some companies are self contained entities, and pay their own income tax with no tax liability “flowing through” to the owners. Other companies typically pay no income tax, but the profits “flow through” to the owners or shareholders, who then claim the income on their personal tax returns where the appropriate income tax is then applied.
As with all tax information, there are many factors that effect how tax is determined, so please contact JMS Tax Services, Inc. or the IRS for more information before you make any decisions or attempt to implement these tax savings techniques. This information is for general purposes only and is not intended to be tax advice.
Payroll Tax: If your company does not currently have employees, then you are not obligated to pay payroll taxes. Once you hire employees, you are required to withhold income tax, social security, Medicare, and state income tax from their paychecks. You must then report this information to the IRS (and appropriate state government) and submit the money withheld, along with matching social security and Medicare that the company pays, to the IRS. Remember, owners can still be employees if they take a paycheck, and the company is required to withhold and pay the appropriate taxes. For additional information about payroll taxes, look at Circular E, Employers Tax Guide on the IRS web site.
Sales Tax: If your company sells a product to its customers, in most cases you are required to charge them sales tax, and then report your sales information to the appropriate state government while submitting the taxes you collected. If your company only provides a service without actually selling a product such as carpet cleaning, accounting, or cutting lawns, you do not need to collect sales tax. There are exceptions for certain industries such as non-for-profit companies, construction, and government entities. For more information about this, contact the revenue department of the government for the state where your company does business, or contact JMS Tax Services directly.