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All about Taxes for Corporations

One of the biggest challenges you will have in your business is handling taxes. Handling taxes as an employee is easy - taxes are deducted before employees get their paychecks. But businesses have to figure out their profits and have the willpower to save a large portion of it for taxes. Cash is scarce and it is extremely easy to spend it on the owners' living expenses or business operating expenses.

In general:
  • Profits over an above your salary: Shareholders usually must pay between 15 and 25% of net profits in taxes.
  • Employment taxes: You must have at least 35% above the paychecks you write yourself and other employees to cover employee taxes.
  • Sales tax: 100% of sales tax that you collected has to be paid in taxes.
Taxes are so high because you must pay both social security AND income tax. Here's how it adds up:
Social security self-employment tax15.2%
Federal income taxusually between 15 and 25%
California income tax1-12.3%

So, the first thing you need to understand is how to calculate your business profits - and what is tax deductible. Available cash and profits are NOT the same thing. Warning: If you have inventory, your inventory costs are NOT deductible until the item is sold. Read the following:

  • Accounting methods: Cash or Accrual?
  • Introduction to Tax Deductions
If you do not have enough money to pay taxes, it is still critical that you file the tax forms. The fines for not filing tax forms are much higher than the interest or penalties for late payments - so file your forms on time - EVEN IF YOU DON'T OWE ANY TAXES! A business with 2 owners that delays filing an IRS 1065 form for 5 months can accumulate $1800 in penalties! So pay attention to due dates.

Sales Tax

If you are purchasing items for resale or if you have customers purchasing for resale, they are exempt from sales tax - IF a sales tax exemption certificate is completed. Below, you will find information about collecting sales tax.

  • Collecting Sales Tax
  • Sales Tax Exemption Certificate
Use Tax

Use tax is owed on anything that you purchase out-of-state or on the Internet where sales tax was not collected.

  • Use tax
Business Personal Property Tax

Business personal property tax is collected by counties based on the value of your equipment.

  • Business personal property tax
Employment Taxes

Even though 2/3 of employment taxes are deducted from an employee's paycheck, the cash still needs to come from your business. This means that in addition to writing paychecks, you need to have at least 35% in additional funds for taxes.

  • Overview of Employee/Employer Taxes

City Hall Contact

701 E Carson Street
Carson, CA 90745
(310) 830-7600, 7 AM - 6 PM
Monday - Thursday
24-hour automated: (310) 952-1700


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