Last week, I was honored to talk about business taxes with the 2016 Class of the Arlington Chamber of Commerce Young Entrepreneur Academy, also known as YEA! Over the six-month program, young entrepreneurs, grade 8-12, develop their ideas into robust business plans that are pitched to an investor panel to compete for funding.
YEA! entrepreneurs, like all business owners, need to know about taxes. All kinds of taxes: income, employment, sales and use, and property. We only had an hour, so we covered the four basic tax areas that small businesses need to know:
1. Income Tax
Net business income is subject to federal and state income taxes. For sole proprietors, net income is figured on an extra schedule attached to IRS Form 1040 for individual taxes. Net income is total business income less deductible expenses.
2. Employment Tax
Self-employed Social Security taxes of 15.3% must be paid on net business income using Schedule SE on the owner’s return. Employees must have taxes withheld and remitted to the IRS, state, and Social Security Administration. Contractors to whom $600 or more is paid during the year are required to receive IRS Form 1099.
3. Sales and Use Tax
State and local taxes are assessed on sales of products and some services. Internet and mail order sales are subject to tax depending on the location of the seller and purchaser.
4. Business Property Tax
Tangible personal property used in a business is subject to property tax, usually collected at the local, or county, level. Taxed property includes furniture, machinery, tools, and all computer and peripheral equipment hardware and all operational software.
One business “tax” often overlooked by new businesses is a county business license. Every business needs to be registered and licensed at the state and applicable local level.
The 2016 YEA! entrepreneurs asked sophisticated questions throughout our tax talk. I was thrilled when one YEA! business owner wrote to me that our tax talk was “a lot of fun and very engaging.” Taxes can be complicated, so I hope to be a resource to YEA! businesses and support their growth.