As we learned in Part 1, the structure of your business will impact the taxes that are owed. On top of that, business taxes are quite different from personal taxes and follow a more diligent payment schedule. This article provides an overview of the various tax categories that your business may owe and their due dates to help you stay on track with tax deadlines.
Begin planning and preparing for taxes on day 1 of your business to avoid trouble with the IRS. Get started by viewing this informative guide from the Arkansas Department of Finance and Administration, Starting a New Business in Arkansas.
Disclaimer: This article provides general information and does not represent legal or tax advice. As laws are subject to change, seek assistance from a certified professional regarding your specific business situation and tax strategy.
There are three levels of taxes (Federal, State, Local) and eight general types of business taxes:
- Income Tax
- Self-employment Tax
- Estimated Tax
- Employer Tax
- Franchise Tax
- Sales and Use Tax
- Excise Tax
- Property Tax
Income Tax – Federal and State
The United States imposes a tax on the profits of US resident corporations at a rate of 21%. If your business is incorporated as a Sole proprietorship, Partnership or LLC, you will have a different tax rate which is based on your personal income tax rate.
Self-Employment Tax - Federal
The Self-employment tax is comprised of two taxes: Social Security tax (12.4%) and Medicare tax (2.9%). As a self-employed individual, you will need to pay both the employer and employee share of the Social Security and Medicare tax on your income from the business. You must pay self-employment tax and file Schedule SE (Form 1040-or 1040-SR) if either of the following applies:
- Your net earnings from self-employment (excluding church employee income) were $400 or more.
- You had church employee income of $108.28 or more.
Generally, you must pay taxes on income, including self-employment tax, by making regular payments of estimated tax during the year. These are due on a quarterly basis on the 15th of the month: April, June, September and Jan of the following year.
Check out this resource from TurboTax to estimate your quarterly taxes for business income and self-employment. A Guide to Paying Quarterly Taxes - TurboTax Tax Tips & Videos (intuit.com)
Payroll Tax – Federal and State
Payroll Taxes are owed if you hire employees for your business. This tax consists of Social Security and Medicare obligations that are shared between employers and employees. Payroll taxes also include Federal Unemployment Tax Act (FUTA) and State Unemployment Tax Act (SUTA), which are obligations paid by the employer only. These payments are due by the 15th of every month to the IRS and the Arkansas Department of Finance and Administration.
As an employer, or a manager accountable for signed checks, you have a fiduciary responsibility for your employees to remit payroll taxes on time. There are severe penalties if you are unable to pay these taxes.
Check out these resources from ASBTDC and DFA to learn more about employer responsibilities:
- Your Responsibilities as an Employer
- ASBTDC Employer Basics Video
- DFA Income Tax Withholding Instructions
Franchise Tax - State
An annual franchise tax is due to the Arkansas Secretary of State - Business Services by May 1st for all corporations and LLCs. $150 is due for LLC’s and a minimum $150 for Corporations.
Sales Tax – State and Local
Businesses located and operating in Arkansas that sell tangible personal property and certain types of services must register and pay sales tax to the Arkansas Department of Finance and Administration. Certain services are sales taxable, some are not. Contact the AR DFA for additional information.
In addition to the 6.5% state sales tax, any applicable city and county sales taxes should also be collected and remitted to the AR DFA. Check out this table to see what the sales tax rate is in your area. A $50 fee is required to register new businesses for a sales tax permit. The sales tax report, Form ET-1, is due on 20th day of the month following the sale. These reports can be filed through mail or online.
Arkansas is a destination-based sales tax state. If you are an e-commerce business or sell at festivals and events, you will need to use the sales tax rate for the location of the buyer when the transaction is completed. Some point-of-sale systems, like Square and Shopify, have built in features to help businesses adjust and track their sales tax rates.
At the local leve, some larger cities such as Little Rock, North Little Rock, Benton and Fayetteville have additional sales tax requirements for prepared food and lodging. Check with your local city office to determine if there are additional taxes that your business may be obligated to pay.
Use Tax - State
If a business purchases items from outside of Arkansas for use, storage, distribution, or consumption within State boundaries and the Arkansas use tax is not collected by the seller of these items, the business must register and remit a use tax directly to the state. This is reported using the same DFA system for sales tax.
Excise Tax – Federal and State
Excise taxes are additional taxes charged on certain goods and services such as tobacco, soda, manufacturing alcohol, etc. Review these sites to see if your business activities are subject to an excise tax.
IRS Excise Tax Form and Table of Activities
Business Property Tax - Local
Any asset(s) that are owned and used by a business, such as equipment, vehicles and furniture, need to be assessed with the county assessor’s office. The assessment due date in Pulaski County is May 31st. Home-based business are also subject to this tax under Arkansas law.
Where do I pay taxes?
Federal - Internal Revenue Service
State - Arkansas Department of Finance and Administration, Arkansas Secretary of State - Business Services
County - County Assessor's Office
City - City Clerk's Office
Am I able to track and file on my own or do I need an accountant?
There are a number of specialized software and online products to help you track and file your taxes, however, you may find that your business tax situation is more complex to manage on your own. Some full service payroll providers can assist with payroll tax withholding and automatic payroll processing while a bookkeeper can help you streamline monthly accounting for your business.
Certified Public Accountants (CPAs) and tax preparers can both help you file your business tax return, but offer different advantages and limitations to support your business. Tax preparers are more cost effective but are best suited if your business only needs assistance filing taxes. CPAs undergo extensive degree programs and continuous education certification and are thus able to advise on tax planning for your business. Additionally, a tax accountant is a CPA that works with business on developing a tax strategy to minimize their liabilities. Search for a tax advisor to see if they provide a free initial consultation.
You may find that working with a financial service provider will help prepare you for and prevent any financial surprises when taxes are due.