Many people think of April 15 as the one day a year when we have to worry about taxes. For a real estate business owner, there are a number of important tax days throughout the year. Understanding the taxes for which your business is responsible and the dates which those tax payments are due are critical concepts to keep your business financially on track.
Income Tax – Federal: All businesses must pay federal income tax annually. The tax you pay personally is based on what is reported on your 1040 IRS Tax Form. Your business income tax may be paid differently, depending on your form of organization.
Income Tax – State: In addition to business taxes required by the federal government, you may have to pay state and local taxes. Each state and locality has its own tax laws. Nearly every state levies a business or corporate income tax, again, based on the legal structure of your business. For example, if your business is a Limited Liability Company (LLC), the LLC gets taxed separately from the owners, while sole proprietors report their personal and business income taxes using the same form.
Estimated Tax: Depending on your business entity, such as sole proprietor, LLC, or corporation shareholder, and if you expect to owe $1,000 or more tax, you may have to make estimated tax payments each quarter based on your earnings and expenses. This is another area where it’s critical to have good accounting advice and to keep good records to ensure that you pay the appropriate amount. Failure to do so may result in penalties and interest.
Self-employment Tax: Self-employment tax is a Social Security and Medicare tax for individuals who work for themselves and earn $400 or more in a year. This tax is based on your net business income. You pay 15.3* percent of your net business income up to $117,000. Then it drops to 2.9 percent for income over $117,000.
* For 2014
Employment Tax: When you have employees, you must pay taxes on their behalf that include Social Security and Medicare taxes, federal income tax withholding, federal unemployment (FUTA) tax, and appropriate state taxes. In some cases, it may make sense to outsource the calculation and payment of these taxes to a certified public accountant or payroll service. The penalties for failing to calculate and remit employment taxes properly are steep, and it often pays to get help.
Depending on your business, you may also need to pay sales and use tax on purchases. Being aware of the taxes you owe and paying them in a timely manner is critical to your business’ financial health.