• USA IRS: how many types of Business taxes (Federal Level)

    According to the United States Internal Revenue Service (IRS), businesses can incur four basic kinds of federal taxes. They include income tax, self-employment tax, employment tax, and excise tax. In addition to these taxes, each state requires that businesses pay certain taxes. In all cases, the way a business operates determines which taxes it owes.

    1. Income Tax

    The IRS requires that all businesses except partnerships file an income tax return yearly. A business that uses the withholding method of paying taxes pays the taxes as it earns income. A business that pays estimated taxes can pay the taxes due when it files a federal income tax return. In addition, some states require businesses to pay income tax depending on the legal structure of the business.

    2.Self-Employment Tax

    The IRS imposes self-employment taxes to contribute to social security and Medicare of a person who works for himself. Some taxpayers find this to be a benefit because the coverage provides them with benefits for retirement, disability and hospital insurance, and also pays benefits to a survivor in the case of death of the payee. Self-employment tax is 15.3 percent. 12.4 percent of that tax goes to Social Security. The Social Security portion of the tax is paid only on the first $106,800 earned by a taxpayer. The IRS defines a self-employed person as “one who carries on a trade or business as a sole proprietor or independent contractor, a member of a partnership that carries on a trade or business, or a person who is otherwise in business for themselves.”

    3. Employment Taxes

    An employer must pay employment taxes to cover Social Security and Medicare taxes, federal income tax withholding, and federal unemployment tax (FUTA) for its employees. The employer pays half of the expense of the Social Security and Medicare tax out of her own pocket and deducts the other half from the employees’ paycheck. The employer covers all the cost of the FUTA. For convenience, the IRS allows an employer to pay the taxes through electronic deposit, check, money order or cash. States also require that businesses with employees pay state employment taxes to cover workers’ compensation insurance and unemployment insurance. California, Hawaii, New Jersey, New York and Rhode Island pay taxes to cover temporary disability insurance.

    4.Excise Tax

    The federal government levies excise tax for certain types of businesses, depending on what they sell or manufacture, the kind of business they operate, the kinds of equipment and products they use, and whether they receive payment for certain services. These include environmental taxes, communications and air transportation taxes, fuel taxes, and taxes on the first retail sale of heavy trucks, trailer and tractors.


    Is the sales tax on merchandise purchased for resale included in inventory?

    In our state, sales tax is paid only by the end customer. In other words, a retailer does not pay sales tax on merchandise that is purchased for resale. To avoid the sales tax, the retailer furnishes the supplier with a reseller’s certificate, which allows the supplier to not charge the sales tax.

    If a sales tax is paid by the reseller and the sales tax could have been avoided, the sales tax would have to be expensed immediately. Costs that are not necessary cannot be recorded as assets.

    If the sales tax could not have been avoided, then the sales tax would be part of the cost of the merchandise purchased. If the merchandise has not been sold, the entire cost will be reported as inventory, a current asset on the balance sheet. If the merchandise has been sold, then the entire cost will be reported on the income statement as the cost of goods sold.

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