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When you own a business, paying taxes becomes even more of a chore. As a business owner, you become an agent of the government, collecting and submitting taxes due from yourself, your corporation and your employees.
Employers are responsible for withholding taxes from employees’ paychecks, sending them to the proper government agencies, and other employer tax obligations. The major employer paid taxes (FICA, federal unemployment, and state unemployment taxes) will be explained later in this section.
The Federal Insurance Contributions Act (FICA) provides for a federal system of old-age, survivors, disability, and hospital insurance. The first three are financed by the social security tax, while hospital insurance is financed by the Medicare tax. To learn more about the five major benefits covered by Social Security taxes (retirement, disability, family benefits, survivors and Medicare), please refer to the Social Security Administration’s Web site.
Employers must withhold social security and Medicare taxes from employees’ wages and pay a matching amount. These taxes have different rates and only the social security tax has a wage base limit. There is no wage base limit for Medicare tax – all covered wages are subject to Medicare tax.
The Federal Unemployment Tax Act (FUTA), together with state unemployment systems, provides for payments of unemployment compensation to workers who have lost their jobs. Most employers pay both a federal and a state unemployment tax. Only the employer pays a FUTA tax. It is not deducted from the employee’s wages.
Generally, employers can take a credit against FUTA tax for amounts paid into state unemployment funds. This credit cannot be more than 5.4% of taxable wages. Those entitled to the maximum 5.4% credit have an effective FUTA tax rate of 0.8% after the credit. The IRS has tests to determine whether a particular business must pay FUTA tax.
State unemployment taxes are also paid by the employer and are not deducted from the employee’s wages. Each state has a different rate and different wage limits from which the taxes are calculated.
Different business structures (sole proprietorship, partnership, corporation, or limited liability company) have different income tax requirements regarding filing dates, forms required, and tax rates and calculations. The IRS lists the various business taxes and forms required for each legal structure.
Federal income tax is a pay-as-you-go tax. Business owners generally pay income taxes in quarterly estimated income tax payments. For more information on estimated income tax payments, refer to IRS Publication 505, Tax Withholding and Estimated Tax.
In addition to federal income tax, business owners also have to pay state income tax. In the fact, business owners in California are among the most highly taxed in the US, making them less competitive in business and industry.
Self-employment tax is a social security and Medicare tax for individuals who work for themselves, similar to social security and Medicare taxes withheld from the pay of wage earners. Social security benefits are available to self-employed persons just as they are to wage earners. Like federal income tax, self-employment taxes are paid through quarterly estimated tax payments. For more detailed information on self-employment tax, refer to IRS Publication 533, Self-employment Tax.
Use tax is a type of excise tax levied in the United States. It is assessed upon "tax free" tangible personal property purchased by a resident of the state for use, storage or consumption of goods in that state (not for resale), regardless of where the purchase took place. The use tax is typically assessed at the same rate as the sales tax that would have been owed (if any) had the same goods been purchased in the state of residence. Typical "tax free" purchases that require payment of use tax include those done while traveling (for things carried or sent home), through mail order, or purchases via telephone or internet.
A sales tax is a state or locality imposed percentage tax on the selling or renting of certain property or services. The fraction of the total taxes collected as sales tax typically varies form about 25% to 50% of government revenue. Nearly all sales taxes have a large list of goods and services, varying from state to state, that the tax is not collected on. Because the tax is collected from the customer, it is a consumption tax. In the United States, it is nearly always explicitly added on and not included in the price. If a person purchases property from an out-of-state seller, sales tax is not due, but rather the customer may owe a so-called use tax. For example, if a person purchases a computer from a local brick-and-mortar retail store, the store will charge the state's sales tax. However, if that person purchases a computer over the internet or from an out-of-state mail-order seller, sales tax may not apply to the sale, but the person could possibly owe a use tax on the purchase. Because of exclusions on what is taxed and not taxed the typical consumer will pay on average about 1/3 of the listed sales tax on all his/her expenditures, i.e. a 7.5% tax will collect on average about 2.5% of a persons income. The sales tax revenues are typically split into several fractions going to the state, schools, counties, cities, public transit and possibly other jurisdictions. The size and split of these fractions vary significantly from state to state except in the states that do not have a sales tax. Additional taxes like Hotel tax, Rental car use fee, etc. that are really disguised sales taxes are imposed typically on non voting visitors to a given location.
The Electronic Waste Recycling Fee is imposed on the consumer and collected by the retailer, at the time of the retail sale or lease of certain new or refurbished televisions, computer monitors, laptop computers, and other devices. This fee is administered by the Electronic Waste Recycling Fee Section.
Environmental Fees includes the Ballast Water Management Fee; Hazardous Substances Programs; and Occupational Lead Poisoning Prevention Fee.
Excise Taxes include the Alcoholic Beverage Tax; Alternative Cigarette Tax Stamp Program (ACTS); California Cigarette and Tobacco Products Licensing Act of 2003; California Tire Fee; Cigarette & Tobacco Products Taxes; Emergency Telephone Users Surcharge; Energy Resources Surcharge; Integrated Waste Management Fee; Natural Gas Surcharge; and Tax on Insurers.
Fuel Taxes include the Aircraft Jet Fuel Tax; Childhood Lead Poisoning Prevention Fee; Diesel Fuel Tax; International Fuel Tax Agreement (IFTA); Interstate User Diesel Fuel Tax; Motor Vehicle Fuel Tax; Oil Spill Response, Prevention and Administration Fees; Underground Storage Tank Maintenance Fee; and the Use Fuel Tax.
A Non-Disclosure Agreement (NDA), also called a confidential disclosure agreement (CDA), confidentiality agreement or secrecy agreement, is a legal contract between at least two parties, which outlines confidential materials that the parties wish to share with one another for certain purposes, but wish to restrict from generalized use. In other words, it is a contract through which the parties agree not to disclose information covered by the agreement. A NDA creates a confidential relationship between the parties.
NDAs can be used to protect any type of intellectual property or trade secret. As such, an NDA can protect non-public business information, know-how, patent-pending inventions, unpatented yet patentable inventions, unpatentable ideas, or copyrighted software. For instance, a script for a high-profile film that is still in production could be the subject of an NDA.
NDAs are commonly signed when two companies or individuals are considering doing business together and need to understand the technology or processes used in one another's businesses solely for the purpose of evaluating the potential business relationship. NDAs can be "mutual", meaning both parties are restricted in their use of the materials provided, or they can only restrict a single party.
It is also possible for an employee to sign an NDA or NDA-like agreement with a company at the time of hiring. In fact, some employment agreements will include a clause restricting "confidential information" in general.
Complying with business laws and regulations can be a burden on small businesses. This booklet’s resources are designed to provide legal and regulatory information to America's small businesses.
Laws and regulations affect every aspect of business strategy. As a result, topics covered on this booklet range from the most basic and crucial, such as choosing a business structure and so on. The booklet also acts as a gateway to federal, state and local information that affects small businesses. One of the main reasons why small businesses fail is because they do not seek legal help at critical development stages. It is imperative, therefore, to learn more about the legal aspects of starting and running a business.
The information on this site is not intended to constitute legal advice or to substitute for obtaining legal advice from an attorney licensed in your state. This web site is not intended to be advertising under applicable laws and ethical rules. These materials have been prepared by the French American Chamber of Commerce with the expertise of our staff and members for informational purposes only and are not legal advice. Anyone viewing the information should not act upon it without seeking professional counsel. The information contained in this website is provided only as general information which may or may not reflect the most current legal developments.