Answering the Business Tax Questions You Forgot to Ask
As a small business owner, taxes can feel daunting. Not only are you responsible for paying your individual taxes and filing your individual return, but you also need to be aware of the specific business taxes that impact your business, remember to pay them, and file your return.
To help you keep everything organized, we recommend finding a trusted tax professional. Even when you’re working with a pro, it’s easy to forget to ask a question or two. We’ve rounded up some of the business tax questions we hear the most to help you stay on top of your taxes.
What Taxes Should I Be Paying?
Ready or not, tax season is always around the corner. By answering the question “what taxes should I be paying” before taxes are due, you’ll be able to better keep track of what you’ll owe and where it needs to be paid. Here are some basic business taxes you should be aware of:
Sales Tax and Use Tax
First, sales tax and use tax are the taxes paid on goods and services. Sales tax is paid by the business or seller based on initial purchase. Use tax is paid by the customer or buyer during the use of the good or service, especially if no sales tax was paid upon purchase. As a business owner, you may be responsible for use tax on certain purchases or product uses, such as inventory you provide as donations or gifts.
Sales tax is our focus, as most goods and services are subject to sales tax. In Minnesota, you will be responsible for a 6.875% sales tax. Local sales tax will vary, depending on your location. This tax is paid to your tax authority, like the Minnesota Department of Revenue.
As you collect sales tax, you may add it to customer receipts as a separate line item, or add it into the cost and denote that the cost is inclusive of sales tax. Either way, you must subtract your sales tax amounts from your total receipts prior to filing.
FICA Tax
Another common tax that small business owners pay is FICA tax. FICA stands for “Federal Insurance Contribution Act,” and covers contributions to Social Security and Medicare. It’s sometimes referred to as the federal payroll tax.
Individuals and businesses both pay FICA taxes, but as a small business owner and employer, you will be responsible for facilitating employee payments to FICA via their withholding.
Total FICA taxes paid are 15.3% for small businesses. This tax liability is distributed evenly to both the employee and the employer. As a result, you will be responsible for a 7.65% FICA tax. Of this 7.65%, 6.2% of that tax liability is for Social Security, and 1.45% of it is for Medicare.
Because FICA tax is paid through payroll, and impacts employee withholdings, having a trustworthy payroll provider is especially important. A payroll provider can help ensure all your withholdings, deductions, and tax payments are accurate and accounted for.
Unemployment Insurance Tax
Finally, some states, including Minnesota, assign an unemployment insurance tax to small businesses. This tax is relevant only to small businesses that paid more than $1,500 in wages to employees the prior tax year, or that had at least one employee for at least a partial work day for 20 different weeks throughout the year. The specific tax rate for your business will depend on factors like your industry and experience, but is subject to change annually.
What Other Unique Taxes Will I Owe?
In addition to the more consistent taxes that all small businesses must pay, we occasionally get unique business tax questions that are specific to your industry or field.
Minnesota Provider Tax
One of the business tax questions we receive most often is about MinnesotaCare Provider Tax, or the Minnesota Provider Tax. Often, people are confused about who owes Provider Tax. This tax applies to self-employed individuals who act as regulated healthcare professionals, as well as the employers of regulated healthcare professionals. For example, acupuncturists, dentists, nutritionists, and social workers may all owe Minnesota Provider Tax, depending on their employment situation.
In addition, some individuals owe Minnesota Provider Tax even if they are not based in Minnesota. In those instances, individuals who sell products as regulated healthcare providers are liable to pay Minnesota Provider Tax. This could include individuals who sell and repair eyeglasses, among others. Not sure if you’ll owe Provider Tax? Contact your tax professional!
As of 2023, the Minnesota Provider Tax is 1.6% of one’s gross receipts from providing patient care. Gross receipts include taxable and exempt income. Exempt amounts will be removed as you file, but must be included initially.
S Corporation Tax
Depending on your business classification, you may owe different taxes, too. Specifically, if your business is an S Corporation and you’ve elected to make a pass through entity (PTE) tax election, you will owe a 9.8% tax. Depending on the assets in your S Corporation, you may also be subject to a minimum fee based on your total property, payroll, and sales. Those fee rates will vary, and can be found on the Minnesota Department of Revenue website.
Property Taxes
Not all business owners own their business property, but if you do, you’re likely to owe property taxes. These taxes are paid at the county level and your tax liability will vary based on your property’s value. That also means your property taxes are likely to change year-over-year, so check in with your tax professional to make sure you’re staying on top of your property taxes.
Other Unique Business Taxes
Of course, if you have unique business tax questions, it’s best to look up potential taxes that may apply to your specific circumstances. Depending on your business, industry, maturity, and location, you may need to pay additional taxes. Although KeyLin is entirely virtual, our business is based in Minnesota, so here are some taxes that may apply to Minnesotan businesses:
Alcoholic Beverage Tax
Franchise Tax
Insurance Taxes
MinnesotaCare
Solar Energy Production
Wind Energy Production
Remember, there are plenty of unique business taxes, so we recommend collaborating with a tax professional to make sure you’re paying your entire tax liability every year.
Let KeyLin Answer All Your Business Tax Questions
As you begin or grow your business, understanding — and paying — your business taxes can be challenging. With a small business, you may owe new or different taxes than you did as an individual. By answering your business tax questions, we hope we’ve given you a place to start. For more information and a more detailed analysis of your unique business tax situation, read our article on our top four tax tips for small businesses or meet with one of our tax specialists!
Share This Article
