Types of Businesses and Taxes for Small Businesses

Small business owners operate small owner-operated companies. They usually run one person or a small group and have less than 100 employees. These companies include family restaurants and home-based companies, clothing, books, publishing companies, and small manufacturers.

Mid-Sized Enterprises

There is no definitive specification in the U.S. to define a mid-sized or medium-sized company. Yet, big U.S. cities like Philadelphia, Baltimore, and Boston check the businesses. They see a medium-sized company.

Large Businesses

Large enterprises may have their headquarters and operate in one country. Departments often organize them. These include human resources, finance, marketing, sales, and research and development.

Large organizations often separate their tax burden from their owners. The owners do not manage their companies, but an elected board of directors does. Small and mid-sized enterprises differ from larger corporations in that a person or group of people owns them.

Income taxes

All businesses must file an annual income tax return. The law exempts partnerships. Partnerships submit a data return. Remember to file an annual IRS Form 1040, Individual Income Tax Return.

Estimated taxes

In most cases, you must pay self-employment tax and income tax. You must pay them every quarter on income that is not subject to withholding. If your expected payments are less than your annual tax liability, you may need to pay a penalty.

Taxation on self-employment

This tax includes Social Security and Medicare taxes. It applies to sole proprietors and general partners and often to members of limited liability companies.

Taxation on employment

Individual-owned businesses are the most basic business structures, with the owner responsible for all debts and obligations.


A business is a partnership between two or more individuals who share responsibilities, profits, and liabilities

Limited Liability Company (LLC)

It is a hybrid legal structure. It mixes parts of a corporation and a partnership or sole proprietorship. Owners are not liable for the company's debts or liabilities.


A corporation is a legal entity owned by shareholders with limited liability. It enables corporations to issue stock and avoid double taxation by passing profits and losses to shareholders.

Nonprofit Organization

An organization operates for purposes other than profit. These purposes include charity, education, or religion.

Types of Taxes for Small Businesses

Self-Employment Tax

Self-employed individuals, like sole proprietors and partners, must pay self-employment tax. It covers Social Security and Medicare taxes. The type of business structure determines this. Many owners have to file a self-employment tax. Wages aren't withheld for self-employed income for payroll taxes. They would be if you were an employee. Business owners will need to account for that in their annual tax filings. The self-employment tax is why many business owners have to pay estimated taxes. They pay them throughout the year. Businesses with employees must withhold federal income tax. They must also withhold Social Security and Medicare taxes from wages. They must pay a matching amount of Social Security and Medicare taxes.

Sales Tax

In some states, businesses must collect sales tax on their sales of goods or services. They then give it to the state. Most states require firms to charge a sales tax on specific items. Some items are subject to a special tax, while others need a general sales tax. A business must pay sales tax based on the buyer's location if it sells goods online. It is due to a recent case. The U.S. Supreme Court ruled that states can request sales tax from online sellers. The sellers are not in the state but have sold to individuals there.

Federal Taxes

All businesses need to file federal income taxes. Most business owners must make four tax payments before the April 15 tax deadline. These are estimated taxes, which are determined based on the owners' income in the prior tax year. They must pay these quarterly taxes or meet the safe harbour rules from the IRS. If they don't, they will face a significant penalty when filing.

Payroll Tax

If a business has employees, it must withhold part of an employee's pay. The business sends the withheld part to the IRS for the employee. The withheld files are about federal programs. These programs include Social Security, Medicare, and Unemployment Insurance. Also, these withholdings are for federal income taxes. Each employee will have a different tax liability. Their income and filing status will determine it.

Excise Tax

Some businesses sell alcohol, tobacco, or gasoline. They may owe excise taxes on those goods. The specific goods or services a company sells determine if it must pay an excise tax. Most of the time, sellers include this tax in the price of goods. The IRS says this tax applies to the sale of fuel, airline tickets, heavy trucks, and highway tractors. It also applies to indoor tanning, tyres, and tobacco.

State-Level Taxes

It is like federal income taxes. A business's structure determines its state income tax. Some states require firms to pay an income tax, and others do not. Check your state Department of Revenue's website. It has specific tax rules.

Property Tax

Businesses own real property, like land or buildings. They may have to pay property taxes imposed by local governments. Many local governments require businesses to get a business license and pay a fee to operate in their area. They call this a Business License Tax.

Choose the best tax service provider for your business

In conclusion, small business owners must understand these companies and taxes. This knowledge is crucial for complying with the law and taxes. It is also essential for managing their finances well. Consulting with a tax professional or accountant can provide personalized advice. The specific circumstances of the business form the basis.

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