Types of Tax Obligations

Accounting: Lesson 8

Jennifer Phipps, owner of Phipps CPA, will be covering taxes and different types of tax obligations.

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- Income Taxes

Income taxes made up 41.5% of tax funding to the government in 2019. Of that percentage, only 3.9% was business component. The individual side of this component does include sole proprietors, single member LLCs, and small businesses.

- Payroll Taxes

24.9% of government tax funding, in 2019, was payroll taxes. Payroll taxes are made up primarily of social security and medicare that are taxes paid both on the employee and employer side. Social security is a function of FICA and is used to fund seniors in their retirement, provide life insurance benefits to beneficiaries, and to assist those with disabilities. Medicare provides hospital services, skilled nursing, and hospice to individuals.

- Sales Taxes

Sales tax is imposed on a state and local level. Every state and local jurisdiction has their own rules for sales tax which means as a business owner, you need to be aware of all the rules in your area. Sales tax is imposed on tangible items that are sold, but can be on some services do apply.

The burden of the seller is not the sales tax itself, it is the collection of the sales tax that is then turned over to the state or local authorities. As a business, remember that when selling your product the sales tax is not an expense of yours but a responsibility to collect.

- Property Taxes

Property taxes can be imposed on tangible items including office equipment, inventory, vehicles, and anything that is not physically attached to the land. For these cases you will have to file another tax return to report these items that you own.

Then the real property taxes will be done when the assessor comes in and makes a value on your property. These property taxes are paid annually.

- How to Manage and Stay Compliant

Resources to help you manage these include irs.gov, state departments of revenue, and government approved websites for local responsibilities. Make sure to also stay compliant with business license requirements. In some cases you can also reach out to a tax preparer, enrolled agent, a CPA, or even a tax attorney.

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