Over the years, many clients have asked me “What are all the taxes I should be paying for my business?” Of course, no one asks this question because they look forward to paying more taxes, but rather they have become tired of receiving notices from different governmental entities with outrageous payment requests. So I have put together a rough list of the most common taxes for a business located in Nashville, TN. The most obvious of which is your federal income tax. But there are many more taxes, mostly on the state and local levels. This list should give you a rough idea of what to expect throughout the year.
Moving to the local level, the personal property tax is one of the first taxes to be filed in the calendar year. It is a tax assessed by Davidson County based on the fixed assets held in your business. This tax return, or Schedule B, should be filed by March 1, and a bill will be sent out later in the year. The Schedule B is a detailed listing of the assets in your business. You must give the county the cost of the assets you hold disregarding any depreciation. The county then assesses your assets using their own method of depreciation, and sends you a bill shortly thereafter based on their net cost.
You also have real property tax which is assessed by Metro Davidson County. There is no tax return to be filed for this tax. It is a tax on your real estate rather than your personal property like the aforementioned property tax. It does not matter whether you are a business or an individual. Every entity that owns real property must pay this tax.
Another local tax is the business gross receipts tax. Your fiscal year end for this tax depends on the class in which Tennessee categorizes your business. These taxes are due two months after your fiscal year end. Although Davidson County and Nashville are one in the same, you must file two returns, one for each of them. The tax is based on your business’s gross receipts. But, you are allowed to deduct personal property taxes paid before the final tax is calculated. The state’s department of revenue, which is in located in the Andrew Jackson building downtown, took over the administration of this tax a few years ago from the county. However, the taxes you pay to the state are still sent to the the local taxing authorities. There are also many other licenses that are unique to certain business and are usually a flat fee. For instance, I have to pay the Tennessee State Board of Accountancy two annual licenses, one for myself and one for my firm. And a company such as a dry cleaners might have to pay a license fee to the Department of Environment and Conservation.
If your business has employees, you are also required to pay payroll taxes to the IRS. Your employees should first withhold enough federal income taxes from their paychecks in order to cover the income taxes they must pay. They must also withhold social security and medicare taxes. As an employer, you are required to pay the employer portion of this social security and medicare. You are also required to pay federal unemployment tax on the first $7,000 of each employee’s earnings. Tennessee does want their share of unemployment taxes as well. You must pay the state on the first $9,000 of income for each employee.
No type of tax is fun to pay, but the most brutal tax for Nashville small business owners, and business owners elsewhere, will usually be your federal income tax. Sole proprietorships, partnerships, and LLCs actually get hit with two types of taxes on their income tax return. As one of these entities, you not only must pay income taxes, but self-employment taxes as well. This is because you are not paying yourself through payroll, and therefore, are not paying any payroll taxes on your earnings. The IRS, as you can guess, will not allow this, so their plan is to take these taxes on your earnings directly on your income tax return. However, they do give you a deduction in the amount of the employer’s portion of FICA since you would be entitled to this deduction had you been a corporation. This second tax just adds to the volatility of your tax liability when filing your income tax return. Needless to say, federal income taxes tend to scare businesses the most, not only because of the higher tax rate, but also, with so many variables involved, most just do not know what to expect. And another reason it strikes fear is that it is also much worse to be in debt to the federal government than to the state or local government.
Finally, when you file your income taxes, Tennessee requires you to file a Franchise and Excise tax return if you are a registered state entity (sole proprietorships and general partnerships do not have to file this tax). This return is due in April as well. The tax on this return is based on two criteria, hence the name. The excise tax is based on your company’s earnings. The franchise tax is calculated using the greater of your business’s net worth, or the sum of your net fixed assets and leased payments times a multiplier during the year. Of course, like every other tax return, the final tax is dependent on other taxes you paid. If you paid the self-employment taxes mentioned in the previous paragraph, then you are usually exempt from paying the excise portion of the taxes.
Let me reiterate that there are countless variables involved for each of these taxes. This is just a very general overview that can hopefully bring a clearer understanding to anyone in Nashville needing business tax help. Feel free to contact me if you have any questions related to the above or if you have any questions about something not mentioned. I will do my best to answer your questions. If you decide that you would like assistance with taxes, I also offer free consultations, and I am confident that you will find my rates to be very reasonable. I look forward to hearing from you.
Remember, never let taxes deter you away from working on your business, maximizing its worth, and of course, enjoying life.
Small Business Bookkeeping – Prior Period Adjustments
