A business must pay several types of taxes (this posts is focused on the USA). Tax rules often change and keeping up with the rules can be a challenge. Which is why most of us, even small businesses, rely on accountants.
Three tax important to pay attention to 2016 to are:
Failure to file accurate payroll taxes or late payments can result in heavy penalties. For deposits that are made a week late, the tax penalty can go up to five percent of the past due amount. Usually the amount of penalty is measured using calendar days beginning with the due date of the tax deposit. The three penalties (failure to pay, failure to file, and failure to deposit) can add up to 33 percent penalties + interest 16 days past the due date.
Payroll taxes are a huge portion of most people’s pay and those that claim some people don’t pay any tax just pretend paying this tax (which is the highest tax most workers pay) isn’t paying tax. The tax rate is 45.3% (7.65% paid by the employer and 7.65% paid by the employee. For the very wealthy this tax isn’t a huge factor as it is only applied to earned income and earnings above $118,500 (indexed to inflation, so the level increases every year) are excluded. The 7.65% figure includes 1.45% for medicare, that has no income limit (so above $118,500 the employee and employer pay 1.45% – a total of 2.9%).
Options like MasterTax tax compliance software are available for businesses to help comply with all the rules. Companies can rely on automated software that houses a rules-driven database (updated with the latest rules) with thresholds and frequencies across different jurisdictions. The benefit is a month-to-month actionable calendar that enables you to make timely payments at no extra cost and without requiring third-party support.
Different corporations have to pay a different percentage of corporate taxes, with penalties for late filing and errors in tax records. For example, a C corporation should file a tax return annually, and the filing deadline comes on the 15th day of the third month after the tax year ends. If the deadline is missed, the business faces a five percent penalty of the unpaid tax, and it goes up to 25 percent after the five month late.
Some software provide free audit guidance from trained tax professionals to help you understand C-corporation corporate tax requirements. Businesses can also use these tools to file electronic returns and receive fast tax refunds. Some software have integrated notifications that inform you that the IRS has received your electronically filed tax return.
Gross receipts taxes
Some states impose gross receipts taxes on businesses like transportation companies. For example, a trucking company will have to pay a tax rate of 50 mills (or 5 cents, $0.05) based on gross receipts from baggage, passengers and freight transportation. Failure to file accurately will result in a five percent penalty per month.
In a tax filing software, you can create a custom workflow for gross receipts taxes and keep track of deadlines to ensure you’re filing on time and avoiding late filing penalties.
You will also likely have to withhold income tax from your employees and send that to the state and federal governments. In addition, if you are a retail outlet in many states you will have to collect and forward sales tax to the state (and sometimes local) government.