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Business Debt: Know the Taxes Your Company Will Pay
Business debt isn't what entrepreneurs have in mind when they dream of one day starting their own company. Yet, taxes are one of the top causes of a business debt, and a leading factor of why many owners close-up shop early. Below lists the different types of business taxes each are required to pay to keep the IRS at bay so you can focus on growing your business.
Sole Proprietorship/LLC
When setting up a Sole Proprietorship, the taxes the business will be required to pay are largely based on the tax bracket its owners fall in. This is because as the owner, all business income or business debt is added to your personal income tax return. Along with your standard 1040, you will need to complete a Schedule C, which reports the business profits and/or business debt. That means only the money left over after business expenses and business assets are deducted will be taxed. With this system, your business is not taxed separately and is paid quarterly throughout the year.
Self-Employment Taxes
When you work for yourself, you are required to pay your own taxes. You file a Schedule SE (if you are part of a sole proprietorship, this is filed along with the Schedule C and 1040). The reduced rate for 2011 is 13.3 percent and will apply to the first $106,800 in earnings. Anything made after that is subject to only 2.9 percent. Estimating these taxes can be stressful and easily miscalculated, leaving you with unexpected business debt; it is recommended you have these taxes professionally filed.
C Corporations
For businesses that are formed as C corporations, the tax rate is based on the federal corporate tax rate. The current corporate business tax rate is 15 percent on the maximum income of $50,000; 25 percent on the maximum income of $75,000; and 39 percent on incomes of more than $100,000. This may seem like a lot, but as the income grows, the marginal tax rate actually decreases to 35 percent. If you are unsure what bracket you fall in, then you should have a tax professional file for you to ensure you aren't left with a hefty business debt.
Employee Taxes
If you are able to hire employees, remember as an employer you are responsible for withholding Social Security and Medicare. Also, you must pay federal income tax and federal unemployment tax. This is very important because a failure to do so can result in payroll business debt. Payroll tax debt is the number one tax trouble small-business owners have. This kind of business debt can be overlooked if the accounting is wrong and could lead to years of unpaid taxes, causing the IRS to audit the business.
Miscellaneous Taxes
It is very easy for a company to aquire business debt while it expands or researches new products, yet it is important that business debt not come from taxes. Company owners must be careful to pay attention to not only the tax structure their business has but also property tax, sales tax, state tax, and depending on the industry, other taxes (i.e. carbon tax). These taxes can lead to large business debt as well.
There is no guarantee your company will succeed, and while most companies acquire business debt, they are able to use that debt in order to grow. However, business debt because of taxes will not help your company grow and can, in fact, keep your company from staying open. The IRS treats business debt due to unpaid taxes quite seriously, and uses the full extent of their power to collect from company owners. The collections that the IRS wields on businesses with tax debt are tax levies on business accounts and tax liens on the company itself. Both actions prohibit the owners to take out credit or pay for daily operating expenses.
Call (800) 590-4524 now or fill out the form below for a free consultation about your business debt. We'll only connect you with a tax debt relief company holding at least a B rating with the Better Business Bureau.
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