Which Tax Agencies Must a Small Business Owner in California Engage With?
Which tax agencies must California small business owners engage with? Business owners in California must deal with at least 4 tax agencies. CPAs explain the obligations each agency handles.
Business owners in California are fortunate to have established their company in a state with a dynamic and robust economy. If you have settled in Placer County California, you may be tempted to set up a small to mid-sized business that leverages the natural beauty, favorable climate, and resources of the area. Many entrepreneurs have tried their hand at horse breeding, vineyards, and California wine-making businesses. Other entrepreneurial professionals have set up consulting businesses – such as veterinary practices – to help support the growth of agricultural businesses. Still other entrepreneurs may see opportunity in more standard, commonplace businesses such as convenience stores, gas stations, or other smaller scale retail operations.
Regardless of the nature of and industry your business serves, you will face numerous tax obligations enforced by an array of state and federal agencies. Entrepreneurs should familiarize themselves with each of the tax agencies they will engage with and the specific obligations each agency enforces. The accountants of the Cook CPA Group can assist with these and other aspects of running a business. To schedule a free initial consultation at our Roseville accounting office, please call 916-432-2218 today.
IRS Handles Federal Income Tax and Employment Tax Obligations
The Internal Revenue Service is familiar to all taxpayers. While most taxpayers realize that the IRS handled both personal and corporate income tax obligations, many do not realize that the scope of the IRS’s duties go far beyond this tax obligation.
The IRS is also responsible for handling the federal employment tax obligation. The federal portion of the employment tax obligation included Social Security taxes, Medicare taxes, and the federal unemployment (FUTA) tax. When a worker is a self-employed independent contractor, he or she will need to pay self-employment taxes to the IRS. The self-employment tax is similar to the payroll tax that is withheld by employers.
California Franchise Tax Board Handles State Corporate Income Tax
Business owners in California are responsible for an annual franchise tax which is assessed, collected, and enforced by the California Franchise Tax Board (FTB). Annually the FTB will publish a list of corporate, personal, and other business tax rates. In 2016, the corporate tax rates set forth by the FTB were as follows:
- Corporations other than banks and financials — 8.84%
- Banks and financials — 10.84%
- Alternative Minimum Tax (AMT) rate — 6.65%
- S corporation rate — 1.5%
- S corporation bank and financial rate — 3.5%
Failure to comply with the corporate or business tax obligation can lead to an investigation or tax audit leading to significant potential fines, penalties, and interest.
California’s Board of Equalization Handles Sales and Use Tax Issues
Sales and use tax are two issues that nearly all businesses will need to navigate. The California Board of Equalization is also the agency that business owners will need to engage with to obtain a sellers’ permit or qualify for the Qualified Purchaser Program. The agency also handles certain special taxes including the insurance tax, cigarette tax, and alcohol tax.
Under California law, most retailers doing business in the state are liable for state sales tax obligations. These retailers should account for and collect the tax at the time of sale. The business should then turn over the tax to the California BOE. While there are certain exceptions to the general obligation to collect and pay over sales tax in California, business owners should consult with a professional before deviating from accepted practices.
Some business owners may face a use tax obligation. Use tax is due when an individual or business purchases goods or supplies from an out-of-state supplier or otherwise does not pay state sales tax and you use, give away, or store the product or materials in California. Business owners in California should remain cognizant of both sales and use tax obligations.
State Employment Taxes Are Administered by the Economic Development Department
Under California state law, all employers in the state employing ten or more workers are required to electronically file with the Economic Development Department (EDD). Reports that must be filed electronically with the tax agency include employment tax returns, wage reports, and payroll tax deposits. Starting on January 1st of 2018, all employers in California will face this obligation. A failure to comply may subject a company to an audit and an array of penalties and fines.
Roseville Accountants Assist Businesses with California Tax Obligations
If you are considering starting a business in California or are looking for assistance regarding an existing businesses federal and California state tax obligations, the accountants of the Cook CPA Group may be able to assist. To schedule a free business tax planning consultation, please call our Roseville accounting office at 916-432-2218 or contact us online.