Brief #10.07 8/2013 Southern Ohio Chapters Federal, State and Local Taxes & Reports (For Businesses with and without Employees) This Brief is intended to be a general guide to help you through the maze of rules and regulations you face in starting and operating a business. It does not provide complete information on all federal, state and local tax laws that may affect your particular business, but provides a general overview as a starting point. It does not cover detailed specifics because the circumstances under which individual business owners operate vary greatly and often determine what types of taxes must be paid (e.g. legal structure, exemptions, deductions, with/without employees, etc.). Instead, cited herein are federal, state and local sources and documents that you should use as guidance in meeting your tax obligations. Tax laws and regulations are extremely difficult for the average person to interpret, and, to make it more complicated, they are in a state of continual change. The assistance of an accountant and/or attorney, while contributing to increased overhead, may prove to be the best overhead money you will ever spend because, in the long run, they will probably save considerable money and concern. Many business operators attempt to install their record keeping systems without examining and understanding the tax forms they need to complete during and at the end of the year. This is a major error for two reasons: a failure to account for the necessary financial information required by government agencies, and a failure to devise a system which will help them analyze their business in order to keep on track financially. Federal Taxes Requirements: You may need to report for Federal purposes the following: o Self- employment income from sales and service o Estimated Income and Payroll Taxes o Social Security and Medicare income and taxes. o Unemployment taxes o Hiring of Independent Contractors. o Verification of U.S. Citizenship of Employees o Tax Exemptions for withholding taxes from Employees The IRS has forms and schedules for each of the above requirements. There are instructions and explanations accompanying each which you should read, and understand how they may apply to you. Federal Tax Publications: IRS Pub 334 – Tax Guide for Small Business is an essential introduction to federal business taxes. http://www.irs.gov/uac/Publication-334,-Tax-Guide-for-Small-Business-%28For-Individuals-WhoUse-Schedule-C-or-C-EZ%29 On the panel, link to “Other Publications related to Publication 334” to access: IRS Pub 15 – Employer’s Tax Guide – calculating, reporting, paying employee taxes ©2013 SCORE Ohio, Brief Number 10.07, Revised 8/2013 1 of 3 IRS Pub 334 – Small Business Guide – key resource: accounting methods, tax liabilities IRS Pub 463 – Travel, Entertainment, and Auto Expense Guide IRS Pub 505 – Tax Withholding and Estimated Tax – required reporting IRS Pub 533 – Self-Employment Tax-Social Security/Medicare on self-employed income IRS Pub 535 – Business Expenses – deductible/non-deductible (start-up costs) IRS Pub 587 – Business Use of Home – how to calculate the deduction IRS Pub 946 – How to Depreciate Property …for tax guidance on how these and other topics apply to your business Federal Tax Forms On the panel, link to “Forms Related to Publication 334”, to access: IRS Form 940 – Federal Unemployment Tax Return IRS Form 941 – Quarterly Federal Income/Social Security/Medicare taxes IRS Form 1040 – Individual Income Tax - on the panel, link to “Forms and Schedules for Form 1040, then link to Schedule C – Profit or Loss from Business for the tax return and instructions on how to file IRS Form 1096 – annual report of all Form1099-MISC payments IRS Form 1099-MISC – to report payments to independent contractors …for these and other tax forms you will need to keep your business in tax compliance State Taxes Requirements: State and local tax compliance is complex, involving: Personal income tax – applied to payroll Municipal/school district income taxes – applied to payroll Commercial activity/Business receipts/income tax Unemployment insurance tax Workers’ compensation insurance tax Sales and use tax/vendor’s license County property tax Each state tax department has a one-stop gateway to information about applicable taxes and rates, forms and filing requirements. Ohio http://www.tax.ohio.gov/ Kentucky http://revenue.ky.gov/ Indiana http://www.in.gov/dor/index.htm Local Taxes City of Cincinnati: • Earnings tax, currently a 2.1% rate, must be paid both by business located in the city and their workers. http://www.cincinnati-oh.gov/finance/income-taxes/ City of Dayton: • Earnings tax, currently a 2.25% rate, must be paid both by business located in the city and their workers. http://www.cityofdayton.org/departments/finance/Pages/TaxForms.aspx Other municipalities, counties, and townships where businesses are operating may have their own taxing requirements, which may be pertinent to your income or operation. Check with the applicable government. ©2013 SCORE Ohio, Brief Number 10.07, Revised 8/2013 2 of 3 Disclaimer The information contained in these briefs is for general information only. While we endeavor to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the information, products, services, or related graphics contained in the briefs Through these briefs you may be able to link to other websites which are not under the control of SCORE therefore the inclusion of any links does not necessarily imply a recommendation or endorse the views expressed within them. Any reference from SCORE to a specific commercial product, process or service does not constitute or imply an endorsement by SCORE or SBA or SCORE Chapter 34 or the United States Government of the product, process, or service or its ©2013 SCORE Ohio, Brief Number 10.07, Revised 8/2013 3 of 3