As a business owner, you would have enjoyed several benefits. You will have the freedom to set your working hours, take vacation time and choose your income and you would remain as the boss for your entire business process. But still, you need to face various challenges while being an owner for your business. One of the major and common challenges which most comes across is tax planning.
When working as an employer, the business owner will take care of the tax considerations. For example, medicare, social security, and income will be reduced from your paycheck. The business owner is responsible for allotting and managing the tax amount in right way. They would determine how much tax amount one has to pay, how much amount the business has to pay and how to redeem from the government. There are four kinds of business taxes. It includes excise tax, employment tax, self employment tax and income tax.
Income tax: It is compulsory for all business owners to file income tax. It has to paid when you receive or earn income. It is mostly paid to the government through tax withholding. If you do not withhold or do not keep back income tax amount, you would end up paying large tax amount as income tax.
Employment tax: If you are having employees in your business, you will be having additional responsibilities. It is important to keep back state and federal income taxes. If you are not living in a state where there is no personal income tax then you do not have to worry about it. You would be holding almost fifty percent of medicare and social security taxes. It can be deduced in the business expense. But still you need to pay and report Federal Unemployment tax that is used by the employer.