Small Business Taxes For Dummies. Eric Tyson
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Название: Small Business Taxes For Dummies

Автор: Eric Tyson

Издательство: John Wiley & Sons Limited

Жанр: Бухучет, налогообложение, аудит

Серия:

isbn: 9781119861164

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СКАЧАТЬ you understand the powerful concept of marginal tax rates, you can see the value of the many financial strategies that affect the amount of taxes you pay. Because you pay taxes on your employment income and your investment earnings (other than retirement accounts), you need to make many of your personal financial decisions with your marginal tax rate in mind.

       For example, when you have the opportunity to earn some extra money, how much of that extra compensation you get to keep depends on your marginal tax rate. Your marginal income tax rate enables you to quickly calculate the additional taxes you’d pay on the additional income.

       Conversely, you quantify the amount of taxes that you save by reducing your taxable income, either by decreasing your income — for example, with pretax contributions to retirement accounts — or by increasing your deductions.

      Actually, you can make even more of your marginal taxes. In the next section, I detail the painful realities of income taxes levied by most states that add to your federal income tax burden. If you’re a middle-to-higher income earner, pay close attention to the sidebar later in this chapter where I discuss the alternative minimum tax.

      State income taxes

      Your total marginal rate includes your federal and state income tax rates. As you may already be painfully aware, you don’t pay only federal income taxes. You also get hit with state income taxes — that is, unless you live in Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, or Wyoming. Those states have no state income taxes. As is true with federal income taxes, state income taxes have been around since the early 1900s.

You can look up your state tax rate by getting out your most recent year’s state income tax preparation booklet. Alternatively, Figure 1-1 gives you an idea of your state tax rates; it reflects state individual income taxes. Some states impose other taxes — such as local, county, or city taxes; special taxes for nonresidents; or capital gains taxes — which aren’t included in this table.

Snapshot of state marginal tax rates.

      Source: The Tax Foundation.

      FIGURE 1-1: State marginal tax rates.

      THE ALTERNATIVE MINIMUM TAX

      In 1969, Congress created a second tax system — called the alternative minimum tax (AMT) to ensure that higher-income earners with relatively high amounts of itemized deductions pay at least a minimum amount of taxes on their incomes. When it was added to the federal income tax code in 1969, the AMT affected a mere 155 high-income taxpayers; in 2017 before tax reform was passed, it hit about 5 million taxpayers! Thanks to the Tax Cuts and Jobs Act, which took effect in 2018, AMT only impacts “just” 150,000 taxpayers annually.

      If you have a bunch of deductions from state income taxes, real estate taxes, certain types of mortgage interest, large miscellaneous itemized expenses, or passive investments (such as limited partnerships or rental real estate), you may fall prey to the AMT. The AMT is a classic case of the increasing complexity of the U.S. tax code. As incentives were placed in the tax code, people took advantage of them. Then the government said, “Whoa! We can’t have people taking that many write-offs.” Rather than doing the sensible thing and limiting some of those deductions, Congress created the AMT instead.

      Corporate income tax rates

      As I explain earlier in this chapter, the vast majority of small business owners pay income taxes on their business earnings at the personal income tax rates. That’s because most small businesses are organized as sole proprietorships, which have income taxed as personal income. Also, many other small businesses that are organized as partnerships, LLCs, and S corporations pass through their income to the business owners in such a way that it, too, is taxed as personal income.

      Employment (payroll) taxes

      Business owners are responsible for the timely payment of all employee-related payroll or employment taxes. Some of these are withheld from the employees’ pay while others are paid by the employer. Here are the taxes I’m talking about:

       Federal income tax withholding

       State income tax withholding

       Social Security and Medicare taxes (also known as FICA) — half paid by employer, half paid by employees

       Federal unemployment tax — paid by employers

       State unemployment tax

      It’s imperative that you understand and properly withhold and pay all of these taxes on a timely basis. For a list of state tax authorities, visit www.taxadmin.org/state-tax-agencies. Otherwise, you and your business could be subject to stiff penalties and interest charges. Here’s an overview of the frequency with which employment taxes are required:

       Larger employers (those who paid more than $50,000 in employment taxes the previous calendar quarter) must submit/deposit their employment taxes every two weeks.

       Moderate-sized employers (those who have between $2,500 and $50,000 in employment taxes) can submit their employment taxes monthly.

       Smaller employers (those who have less than $2,500 in employment taxes quarterly) may submit their employment taxes with their quarterly employer tax returns. Those with $1,000 or less for income tax withholding and Social Security and Medicare tax payments or federal unemployment tax payments under $500 can pay annually.

      Employers must generally deposit these taxes electronically using the Electronic Federal Tax Payment System (EFTPS), which was originally launched in 1996 and doesn’t charge users. This system enables the transfer of your funds from your bank account to the U.S. Treasury.