Taxes…they’re basically a guaranteed part of life, whether you like it or not. But taxes as a business owner is something else. You have your sales tax, both retail and wholesale, your wage withholding, oh and don’t forget your quarterly! What do all of these mean and how do you calculate them?
[Just a disclaimer: I’m going to be talking about taxes in my home state of CO. Some of these facts might also be effective for other states, but you should double-check with your state’s Department of Revenue website.]
Let’s start with sales tax. There are two different types of sales: wholesale and retail. Wholesale sales is when goods are sold to other retailers or wholesalers and this type of sales isn’t taxed in the state of CO. Sales from business to consumer is taxed and this is based on the destination of the sale. If the sale was done in a store, then it is taxed based on that specific location, but if the product was shipped, then it is taxed based on the destination of the item. Tax rates differ based on the zip code; the state sales tax rate is 2.9%.
If you have employees, then you are expected to withhold taxes from their paychecks and pay this to the government on time. Wage withholding taxes can include federal and state taxes (income, Medicare, and Social Security) as well as employer taxes like unemployment. These are collected and paid to the government, usually by the payroll company that runs your payroll. Additional liabilities that aren’t taxes include health insurance, 401(k), and workers comp. These are paid to the companies that you receive benefits from. I go into more detail about how to integrate payroll to your QBO account here.
Estimated quarterly tax payments are made when a business is expecting to owe $1,000 or more when filing taxes. I suggest you reach out to a tax preparer when you get started with your business. They can help you know when to start paying quarterly tax.
These are the most common types of business taxes that you might see. If you’re located outside of Colorado, this may be different so I would double-check with your department of revenue. They may have a business tax class that you can take to learn more.
