Tax Issues for Businesses

Learn more about business taxes.

Business Taxes

As a business owner, you have federal, state, and local tax requirements. Each state and locality has its own tax laws. Common types of business taxes include the following:

Income Taxes

All businesses, except partnerships, must file an annual federal income tax return. Partnerships file an information return. Almost every state levies a business or corporate income tax, though each state and locality has its own tax laws. Your tax requirement depends on the legal structure of your business:

  • A Limited Liability Company (LLC) gets taxed separately from the owners of the business.
  • Sole proprietors report their business and personal income taxes using the same form.

The federal income tax is a pay-as-you-go tax. You must pay the tax as you earn and receive income during the year. State business and personal income tax systems use the graduated method in some states and the flat rate method in others.

Employment Taxes

The federal government requires businesses to pay employment taxes, such as:

  • Social Security and Medicare taxes.
  • Federal income tax withholding.
  • Federal Unemployment (FUTA) Tax.

All states require businesses to pay state workers’ compensation insurance and unemployment insurance taxes. These states/territories also require a business to pay for temporary disability insurance:

  • California
  • Hawaii
  • New Jersey
  • New York
  • Rhode Island
  • Puerto Rico

Sales and Use Tax

States may impose a tax on the sale of goods and services. Rates may vary by county. As a business owner, you may have to:

  • Pay a vendor tax. You pay tax on the sale of goods and services. 
  • Collect a consumer tax. You collect the tax from the buyer and then send the tax money to the state.
  • Pay and collect a combination tax. You pay a vendor tax and then pass on the tax to the consumer. You then collect the tax and send the tax money to the state.

Depending on the state, you may have to register to pay and/or collect sales tax.

Exclusions and Exemptions

Exclusions in sales tax often include food, clothing, medicine, newspapers, and utilities. Since food is a necessity, some states do not tax food. In addition, certain groups are often exempt from paying sales tax. Charitable, religious, and educational groups are often excused from paying sales tax under certain conditions.

Use Tax

Many states also have a use tax. Rates may vary by county. Similar to a sales tax, a use tax is imposed for the storage, use, or purchase of personal property that is not covered by the sales tax. Typically, this applies to lease and rental transactions, or to major items purchased outside of the state, such as automobiles.

Depending on the state, you may have to register to pay and/or collect use tax.

Property Tax

Each of the 50 states have different definitions of what property is taxable. 

  • Some states collect property tax from businesses in commercial real estate locations. If you lease the property, check your lease to see if you or the owner is liable.
  • Some states also collect property tax for business assets, such as vehicles, computer equipment, and peripherals.  

The amount of tax to be paid is figured on the total value of the property or on a certain percentage of the value. 

Business Tax Resources

Federal

To find federal tax requirements for businesses, visit:

State and Territory

To find state and local tax requirements for businesses, refer to these resources:

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Tax Checklist to Close a Business

When closing your business, don't forget about your tax obligations. Make sure that you know what forms to file and follow the procedures to get out of business.

Checklist

Typical actions required when closing your business include:

  • You must file an annual return for the year you go out of business.
  • If you have employees, you must file the final employment tax returns and make final federal tax deposits of these taxes.
  • You must attach a statement to your return showing the name of the person keeping the payroll records and the address where the records will be kept.

You will also need to file returns if you wish to:

IRS Resources

Watch the IRS video on closing your business. You can also contact the IRS Business and Specialty Tax Line at 1-800-829-4933 (TTY: 1-800-829-4059).

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Energy Tax Incentives

If you purchase energy efficient appliances or make energy saving improvements to your home or business, you can save money on your utility bills. You can also save more money on these purchases, in the form of tax incentives, such as tax credits and rebates, or sales tax holidays. Use these databases to find out if you qualify for state, local, utility, and federal incentives:

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Estimated Taxes

Estimated tax is the method used to pay taxes on income that is not subject to withholding. This includes income from self employment, interest, and dividends. You may also have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough. If you do not pay enough through withholding or estimated tax payments, you may be charged a penalty.

How to Pay Estimated Tax

If you are filing as a sole proprietor, partner, S corporation shareholder, and/or a self-employed individual, you generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return.

If you are filing as a corporation, you generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return.

When Do You Pay?

For estimated tax periods, the year is divided into four payment periods. Each period has a specific payment due date. To find out more information about estimated tax, refer to Publication 505, Tax Withholding and Estimated Tax.

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Report Suspected Federal Tax Fraud

If you suspect or know of an individual or company that is not complying with the tax laws, you can report tax fraud to the Internal Revenue Service (IRS). If you report federal tax fraud, you may be eligible to claim a Whistleblower Informant Award

If you have a federal tax question not related to fraud, you can use this listing to find the correct office to help you.

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Taxpayer Identification Numbers (TINs)

A Taxpayer Identification Number (TIN) is an identification number that is used in the administration of tax laws. You must provide a TIN on returns, statements, and other tax-related documents.

There are several types of TINs available:

  • Social Security Number (SSN) - You need this nine-digit number to get a job, receive Social Security benefits, and other government services.
  • Employer Identification Number (EIN) - This is also known as a federal tax identification number, and is used to identify a business entity.
  • Individual Taxpayer Identification Number (ITIN) - This tax processing number is only available for certain nonresident and resident aliens, their spouses, and dependents who cannot get a SSN.
  • Adoption Taxpayer Identification Number (ATIN) - A temporary nine-digit number issued by the IRS to individuals who are in the process of legally adopting a U.S. citizen or resident child but who cannot get an SSN for that child in time to file their tax return.
  • Preparer Tax Identification Number (PTIN) - If you are a paid tax preparer you must use a valid Preparer Tax Identification Number (PTIN) on returns you prepare.

The Social Security Administration (SSA) issues a SSN while the Internal Revenue Service (IRS) issues all other TINs.

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