If you’re a freelancer or business owner, you’re likely feeling stressed about paying your business taxes. What makes matters more complex, is that you’ve got to deal with both federal and state taxation.
But what are the differences between federal vs. state taxes? Do you always owe both?
Tax laws always change and as the tax code is complicated, you want to always consult a tax attorney.
However, this quick guide will give you an overview of federal vs. state taxes.
All business owners and freelancers based in the 50 contiguous states are obligated to pay federal taxes.
These are business taxes that get sent to the federal government. They get collected by the IRS every quarter for business owners.
For freelancers, there might be some situations where you can defer your payments to pay once per year. This is opposed to paying estimated business taxes each quarter.
As a general rule, this isn’t required if you owed less than $1,000 in business taxes for the previous year. However, you always want to consult a tax attorney first.
If you’re required to pay estimated business taxes and fail to do so, you can incur a penalty.
Most U.S. states have a corporate tax rate, with a few having none at all. If your main concern is to reduce your tax rate, you want to opt for a low tax state or one with no corporate tax.
In most cases, you can incorporate your business in a different state from where you live. If you run an online business or freelance, you want to consider doing this.
You have to pay state taxes often during the same time that you pay federal taxes. Each state will have a different timetable for when taxes must get paid.
How to Manage Federal vs. State Taxes
The arduous tax obligations are enough to put any freelancer or business owner off!
But if you consult a tax attorney, they can help you with filing and paying your business taxes. You also have to prepare for possible audits or battles with the IRS.
A reputed tax firm such as Delia Law can help you fight your case in federal and state tax courts if needed.
It’s also imperative that you keep accurate records of your earnings and expenses. Expenses are often a life-saver to reduce your company’s tax obligations.
For self-employed federal taxes and self-employed state taxes, one can expect taxes to cut into your personal budget.
As a freelancer, it’s especially crucial that you keep records of all purchases needed for your work. This can help you save money to expand your business.
Grow Your Business
Now that you know the obligations for federal vs. state taxes, you’re better prepared to grow your business.
For many entrepreneurs, taxes are a nuisance that we’d rather not deal with. But with the proper tax planning, you can avoid any issues with the IRS.
You can also minimize your taxes to scale your business faster. Make sure you hire a tax attorney to offer you guidance.
Please share this guide with your fellow entrepreneurs. You can find more business advice on our website!