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Turn Your Startup Dreams into Reality — How Tax Planning Can Fuel Your Business Growth

Starting a new business is usually a big hassle for newcomers. You have to take care of a lot of things, including tax implications. It is one of the most important aspects of opening a business, and it is also not very easy to understand as it is a very complicated topic. An experienced Rockville MD CPA will help you understand this complicated and difficult-to-understand aspect of the business in the blog given below.

Understand and choose the Right Business Structure.

Taxes are affected immensely by the structure of the business you are running. Some examples are given below.

  • A sole proprietorship means the business is not a separate entity; therefore, the owner has to pay the individual tax rate. Businesses will not have a separate tax rate like any other business structure.
  • A partnership has two or more people sharing income and loss. Therefore, they have to file an annual information return that contains a report of all incomes, losses, deductions, and gains. They will distribute the taxes among themselves.
  • A corporation is a separate entity from its owners. They have to pay taxes on their corporation’s behalf on their profits, and shareholders also bear the taxes on their dividends.

Understand How Federal Taxes Work.

Federal taxes are an important part of the US tax system. Understanding how it works is also very important.

  • Income tax is different for different business structures. Sole Proprietor has to pay it on personal tax returns. C-corps pay it at the federal level, and S-corps pass it on to the shareholders, and they pay it on their income.
  • Self-employment taxes include Social Security and Medicare. Every business has to pay 15.3% of its income. 12.4% is for Social Security and 2.9% is for Medicare.
  • If you have employees working under you, you will have to pay various taxes like Federal Income Tax Withholding, Social Security and Medicare Taxes, and Federal Unemployment Tax. In some of the above taxes, you will have to deduct the amount of tax from your employee’s wages.

What Are The State And The Local Taxes?

Understanding state and local taxes will help you greatly if you are going to start a business. 

  • Most states impose state income tax, which needs to be paid by the owners, businesses, and their employees. Some corporations need to pay corporate income tax.
  • If you sell goods and services, you need to collect sales tax from your customers and return it to the state.
  • Businesses that own properties like land for factories or shops have to pay a separate property tax on the amount of property they own.