If you’re a new business owner and are feeling overwhelmed by the prospects of paying too many taxes, it might be because there are so many different types of taxes for which to account. Depending on your type of business, an Illinois business owner will be liable for different taxes including (but not limited to):
- Sales: Does your business sell widgets, or food products? You are responsible for collecting the state (and sometimes local municipality’s) Sales and Use Tax and remitting these back to the appropriate taxing agencies. Sales tax rates can range around 7.5% to 10%.
- Payroll: Do you have employees? You will be matching your employee’s payroll withholding taxes, as well as contributing to federal and state unemployment insurance premiums based on your employees’ earned wages.
- Franchise: The state of Illinois charges a Franchise tax of 1.5% for corporate business owners. This includes LLC, C-corporations and S-corporations, but not sole-proprietors or unincorporated partnerships.
- Income: Similar to sole-propietorships, S-corporations and LLC’s are considered “pass-through” entities. In other words the net profits of those businesses “pass-through” to their owners and are taxed at the business-owners’ individual tax rates. The income tax returns for S-corps and LLC’s generate a K-1 form for each shareholder or LLC member; these are the business owner’s equivalents to an employee’s W-2 form. However, different from a W-2 which typically already includes income tax withholding, a business owner with net-income from his/her business can either file and pay quarterly estimated taxes throughout the year or pay the lump-sum with the year-end income-tax return.
For the above taxes, the IRS and Illinois state agencies may apply late file or late-pay penalties; so work with your tax-professional to calculate the correct taxes due, maximize your tax return, file on time, pay on time, and save all that time and headache of doing it alone.
Article Contributed by D Zorea of DDZ Accounting Group.