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For tax purposes, a business must have its own tax identification number and is required to file a variety of returns at the local, regional and national levels. Some business tax returns are based upon net profits and assets owned or purchased by the company. Other tax returns are used to remit payroll taxes, unemployment taxes and sales or value-added taxes collected on the sale of goods or services.
In the United States, businesses file annual federal and state income tax returns and pay tax to both jurisdictions on their net profits. Certain municipalities also charge income taxes, while other cities assess a head tax, which is a set amount per period for each employee. Non-profit organizations are also required to file annual business tax returns using form 990, even though they are not subject to taxation. Sole proprietorships are liable for income tax as well, but these are filed with the owner’s personal tax return on Form 1040, Schedule C.
If a business has employees, it will have additional business tax returns to file. Employers are required to withhold federal, state, social security and Medicare taxes from wages, and to remit these, along with the employer match of social security and Medicare, on a quarterly basis. Employers are also required to file and pay both state and federal unemployment taxes. Annual reconciliation reports are due for each of these taxes.
States, counties and municipalities require business tax returns to remit sales, use, lodgers and personal property taxes. In most states, sales tax is only charged on goods, not on labor or services. Additional tax may be assessed at restaurants, hotels and for entertainment events. These tax returns are generally filed on a quarterly basis. Personal property tax is assessed against the value of personal property owned by a business and is remitted annually to local governmental jurisdictions.
Business tax returns in the UK are similar to those in the US. Companies are required to file annual tax returns and pay tax on their profits, as well as to withhold and remit income tax from their employees. National Insurance and job seekers allowance withholding is matched and remitted, generally on a quarterly basis.
Like most European Union countries, the UK charges a Value Added Tax (VAT) in place of sales tax. Companies pay VAT on most raw goods, materials and services they purchase, and then charge VAT on their products and services. Business tax returns reporting VAT show the amount paid by the company, called input tax, as well as the amount they have collected, which is referred to as output tax. If the output tax exceeds the input, they remit the difference. If the input tax is greater, they receive a refund.
In Canada, business tax returns include annual income tax, retail sales tax (RST), also known as provincial sales tax (PST), and personal property tax on most equipment and machinery owned by the business. In addition to the provincial sales tax, national sales taxes, called the goods and services tax (GST) and the harmonized sales tax (HST), must be collected and submitted regularly. Canadian businesses are also responsible for withholding and submitting income taxes from employees as well as collecting excise and fuel duties.
One of the challenges a new business faces is discovering what business tax returns will be required. Most governmental jurisdictions provide Internet resources for businesses, and some even offer free tax training courses. It is also advisable to spend some time with a tax professional to make certain all legal requirements are being met.