Listen to the Podcast for additional information Episode 622019
When you calculate self-employment or payroll taxes use your state withholding rate, for example, NC is a flat rate of 5.25%, and Federal taxes vary, the minimum is 15.4%, rate includes FICA (Medicare and Social Security taxes). If you receive a refund each year, you can use the minimum. If you do not receive a refund, you need to account for federal tax withholding, and that is separate from FICA. Withholding rates vary and are based on earnings (tax brackets vary). You can look up your federal withholding rate here: https://www.irs.gov/pub/irs-pdf/p15.pdf
We also must pay business income taxes depending on your business structure. Many states have various local and city taxes depending upon the industry. Although a state may not have income withholding, that same state may still have sales and use tax. Sales and use tax is another business tax and applies typically too many business structures, products, and some services.
Not to go into detail about taxes, let’s look at the primary tax, and that is income tax. Many people avoid the corporation status because they believe you must be a big business, or they don’t want to pay what many refer to as double taxation. The truth is although it appears to be double taxation, we must think about the process. I cover this more in my upcoming business digital online electronic course (Ecourse) “Taxes and The Business Owner.”
When considering prices, income taxes are included in the business expenses percentage markup (Read more about the BE markup in last weeks blog/podcast Pricing Package Breakdown. )The business expenses markup will cover your merchant account fees, any discounts, as well as taxes. Sales tax is different although it can be included in the price; commonly, it is added to the checkout or final price.
Remember your labor cost will cover your expenses for the work or costs for your employees or contractors. When thinking of pay for employees, you will also have to pay 15% federal tax on your employees. You also need to cover your payroll or self-employment taxes for yourself. Deciding if you pay self-employment tax or payroll taxes will depend on your business structure. Coming soon a new updated course "Taxes and the Business structure."
Author: Y. Michelle Coard, BAS, Accountant and Profit Strategist.
Watch video examples in the podcast.