If you are going to be in business, you'll want to know what types of business taxes may apply, including:
- State and Federal Income Tax
- Self-Employment Tax
- State and Federal Payroll
- Sales and Use Tax
- Property Tax
- Special Tax
Taxes that may apply include:
This is a tax on you and/or your business's net income. If your business entity is a sole proprietorship, or you have a net profit reported on your individual income tax return from a partnership or S corporation, you pay any California or federal income tax liability by making quarterly estimated tax payments. These estimated tax payments apply to your individual income tax returns FTB Form 540 and IRS Form 1040. For more information about estimated taxes see IRS Publication 505, Tax Withholding and Estimated Tax.
If your business is a corporation, or a limited liability company structured as a corporation, the quarterly estimated tax payments are made by the business and apply to the business's corporate FTB Form 100 and IRS Form 1120. The IRS provides more information about this in IRS Publication 542, Corporations.
Self-employment tax is social security and Medicare tax for people who are self-employed. This tax applies to those who are sole proprietors with a net profit of $400 or more during the year. It also applies to individuals who have a net profit of $400 or more during the year from the partnership or limited liability company that is structured as a partnership.
Employers are required to report all employee wages to EDD each calendar quarter. With the exception of some employers of household workers, periodic deposits of State Disability Insurance (SDI) and Personal Income Tax (PIT) withholdings are required. The frequency of the employer's deposit schedule is determined by the employer's federal deposit schedule and the amount of PIT withheld. An annual reconciliation of state income tax withholding is also required.
New employers in California pay 3.4% of the first $7,000 in wages per employee for Unemployment Insurance (UI) tax and 0.1% (also of the first $7,000 in wages) for Employment Training Tax (ETT). While the UI rate for new employers doesn't change for the first three tax years, the ETT rate may be 0% (zero) for a new employer after his first year if his reserve account has a negative balance. See DE 231Z, Information Sheet: California System of Experience Rating for information on how UI rates are determined. The SDI rate may change each year.
Registration forms can be ordered on Online Forms and Publications, picked up/mailed/faxed from your nearest Employment Tax Office, or downloaded from EDD's Website. After registering, the necessary forms and publications, including California Employer's Guide (DE 44) with the PIT withholding tables, will be sent to you.
In addition to withholding and depositing federal income tax, social security, and Medicare taxes from an employee's wages, employers are responsible for withholding and paying a matching amount for social security and Medicare taxes. For more information on this, see Section 9, Withholding From Employee's Wages, of IRS Publication 15, Employer's Tax Guide.
Publication 15 (Circular E), Employer's Tax Guide, explains your federal tax responsibilities as an employer. It explains the requirements for withholding, depositing, reporting, and paying federal employment taxes. It explains the federal forms you must give your employees, those your employees must give you, and those you must send to the IRS and SSA. This guide also has tax tables you need to figure the taxes to withhold for each employee for 2001.
Additional employment tax information is available in Publication 15-A, Employer's Supplemental Tax Guide. Publication 15-A includes specialized information supplementing the basic employment tax information provided in this publication.
Most employers must withhold (except FUTA), deposit, report, and pay the following employment taxes:
- Income tax.
- Social security and Medicare taxes.
- Federal unemployment tax (FUTA).
Retailers are required to pay sales and use taxes and file tax returns. Although you are required to pay and report sales and use taxes to the Board of Equalization (BOE), you may be reimbursed by your customer for the amount of tax you owe on a sale. It is the retailer's responsibility to report the correct amount of tax for the sale and to pay the tax to the BOE to avoid paying a penalty and interest charges.
Retailers are required to obtain a seller's permit. When you obtain your seller's permit, you will be instructed to file your tax return on a monthly, quarterly, or annual basis. The BOE will send you a tax return form (BOE-401 or BOE-1150 series) to complete at the close of each reporting period. See Applying for a Seller's Permit.
For more information, call (800) 400-7115 or see the Board of Equalization's Website.
In California, all property is taxable unless otherwise provided for in the California Constitution. Property is taxed in the county where it is owned, claimed, possessed, controlled or managed. The maximum general tax rate is one percent plus any bonds approved by popular vote. If you need further information, contact the applicable county assessor. For information about state-assessed property, visit the BOE Website, State-Assessed Properties Program.
The BOE administers several taxes and fees in addition to the state's sales and use taxes. Some of the other tax and fee programs the BOE administers are excise taxes, fuel taxes, and environmental fees. For a listing of who is required to register for special taxes and fees, see other BOE Administered Tax Programs (Special Taxes).