|All about Taxes for
One of the biggest challenges you will have in your business is handling taxes. Handling taxes as an employee is easy - taxes are deducted before employees
get their paychecks. But businesses have to figure out their profits and have the willpower to save a large portion of it for taxes. Cash is scarce and it is extremely easy to spend it on the owners' living expenses or business operating expenses.
Taxes are so high because you must pay both social security AND income tax. Here's how it adds up:
- Profits over an above your salary: Shareholders usually must pay between 15 and 25% of net profits in taxes.
- Employment taxes: You must have at least 35% above the paychecks you write yourself and other employees
to cover employee taxes.
- Sales tax: 100% of sales tax that you collected has to be paid in taxes.
So, the first thing you need to understand is how to calculate your business profits - and what is tax deductible.
Available cash and profits are NOT the same thing. Warning: If you have inventory, your inventory costs are NOT deductible until
the item is sold. Read the following:
|Social security self-employment tax||15.2%|
|Federal income tax||usually between 15 and 25%|
|Alabama income tax||2-5%|
If you do not have enough money to pay taxes, it is still critical that you file the tax forms. The fines for not filing tax forms
are much higher than the interest or penalties for late payments - so file your forms on time - EVEN IF YOU DON'T OWE ANY TAXES!
A business with 2 owners that delays filing an IRS 1065 form for 5 months can accumulate $1800 in penalties! So pay attention to due dates.
If you are purchasing items for resale or if you have customers purchasing for resale, they are exempt from sales tax - IF a sales tax exemption certificate
is completed. Below, you will find information about collecting sales tax.
Use tax is owed on anything that you purchase out-of-state or on the Internet where sales tax was not collected.
Business Personal Property Tax
Business personal property tax is collected by counties based on the value of your equipment.
Even though 2/3 of employment taxes are deducted from an employee's paycheck, the cash still needs to come
from your business. This means that in addition to writing paychecks, you need to have at least 35% in additional funds for taxes.
The Chamber in Jackson County continues its main role as an active leader and facilitator in bringing together the resources of Jackson County agencies and organizations to promote cooperation, credibility, and communication while providing the means of quality growth in the community. The main focus will always be towards the small businesses of Jackson County.
We're located on East Willow Street in the heart of Scottsboro, AL
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