How to Pay Business Taxes
Making sure your business taxes are paid on time and correctly is key to keeping your business running. Even if you decide to outsource to a bookkeeper or accountant, a basic understanding of business taxes will help you better understand and plan your business financials. If you’d like to get a deeper dive into business taxes, check out our 3-session mini course on How to Do Business Taxes on Teachable.
There are 3 different government entities that may want to receive tax payments from you: federal, state, and local. We’ll tackle them one at a time.
Federal Taxes
The type of business you are (LLC, Corporation, Partnership) will impact how you pay taxes, along with whether or not you are an employee of the business.
Income tax: The majority of small businesses don’t pay income tax because they are pass-through entities; rather, the owners pay taxes on their personal tax return. Income taxes are paid either through withholding on your paycheck (if you are an employee) or through periodic, quarterly estimated tax payments, or both.
Payroll tax: If the business has employees (even if you are the only employee), it must pay payroll taxes. Payroll taxes include Social Security and Medicare taxes, federal income tax withholding, and federal unemployment tax. There are two parts to this: the amount you are sending in as an employer, and the amount you are withholding from your employee’s paycheck. Payroll taxes must be deposited either monthly or semi-weekly. You can determine which schedule your business needs to follow by going to the IRS small business web site. If you are using a payroll service, they will take care of filing and sending in these tax payments for you. If you don’t use a service, you’ll need to pay it electronically. Businesses also must file a Form 941 payroll return once a quarter and a Form 940 (federal unemployment tax) yearly.
State Taxes
Any business that is taxed as a Corporation or partnership must file a Virginia income tax return (form 500 for a C-corporation and form 502 for an S-corporation or partnerships, including LLCs). Just like federal income tax, business owners must pay quarterly estimated tax payments. C-corporations pay as corporations, other pay as individuals.
Make sure you go to www.tax.virginia.gov and register for iFile which allows you to file and pay all Virginia taxes online. All taxes must be paid electronically, through iFile or a system that’s electronically tied to Virginia’s system. Virginia employee tax withholding needs to be paid quarterly, monthly, or semi-weekly, depending on the average monthly tax owed. So, the more tax you think you’ll have to pay, the more often you’ll need to file and pay it. The Virginia Unemployment Tax Act requires any business that has employees to pay into the Virginia unemployment system. To file and pay, you must first register your business with the Virginia Employment Commission (you can register for this on iFile). These taxes are filed each quarter.
Sales Taxes
If you are selling tangible property, meaning something you can hold in your hand (not services nor real property like real estate), your company needs to be registered in the Virginia sales tax system to collect sales tax. The tax in this area of Virginia is the 5.3%, while it can be different in other areas. Check with the Virginia Department of Tax to determine the correct rate in each area. You collect this from the customer and then submit. This is another tax that can be paid through the iFile system. The retail sales tax return and payment must be made by the 20th day of the month for the preceding month’s gross receipts. Even if you sold $0 of product, you’ll need to file. If you travel the state selling you will also need to keep track of which jurisdiction you made the sale and report it when reporting your sales tax.
Local Taxes
In the area served by the Roanoke Regional SBDC, there is no local employment tax; however, there are additional taxes and fees that you need to be aware of. Your annual business license fees (also known as gross receipts taxes) are going to be based on your previous year’s sales. Each jurisdiction has their own rates and standards so check with your local commissioner of revenue office. In addition, any tangible property (machinery, tools, furniture, computers) owned by your business must be listed on a tangible personal property form your business receives each January. You’ll then get a tax bill from the local Commissioner of the Revenue office.
If you are operating a food, beverage, event, live entertainment, or hospitality business, there is likely a local tax that applies to you, such as meals tax, lodging tax, or entertainment taxes. Again, check your local Commissioner of Revenue office for details.
Resources:
IRS Small Business and Self-Employed Tax Center