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The basics of federal business taxes: Part II

Earlier this week, we began a discussion about federal taxes that affect businesses and business owners. If you are an entrepreneur who is just starting out, you may not yet be familiar with the various tax requirements associated with your specific business structure.

Our last post focused on income taxes. In today's post, we'll discuss employment taxes and excise taxes.

What are employment taxes and how do they work?

These are taxes businesses and business owners must pay to cover programs like Social Security (retirement and disability), unemployment and Medicare. Whether you pay employment taxes or self-employment taxes depends on whether you work alone or have employees.

If you work for yourself and made at least $400 in net earnings for the year, you'll generally need to pay self-employment taxes. These cover contributions to social security and Medicare.

If you are an employer, your employment tax liabilities will include contributions to Social Security and Medicare as well as unemployment compensation. Your duties as an employer will also require you to pay federal income tax withholding on behalf of your employees.

Basic information on excise taxes

This category of taxes is probably the least understood among business owners. As a consumer, you indirectly pay excise taxes on some of the things you buy and services you use. Several common examples include gasoline, alcohol and cigarettes. Excise taxes are not the same as sales taxes. Rather, businesses pay taxes on certain items they sell (like those listed above) and then fold the cost of those taxes into the price of the items.

If your business sells certain items, you likely have to pay excise taxes. You may also have to pay excise taxes on certain activities related to your business. As an example, large and heavy commercial vehicles (trucks, buses, etc.) often have to pay excise taxes for operating on public highways.

The Bottom Line

Tax compliance should be easy and straightforward for business owners. Unfortunately, it is usually just the opposite. If you want to spend less time worrying about taxes and more time focused on running your business, you may benefit from the help of a certified public accountant, a tax law attorney or both.

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