Are Small Business Taxes Based on Revenue or Gross Profit?

Small businesses pay a variety of taxes, including some based on revenue, others based on gross profit and others based on payroll. Business taxes are fairly straightforward when you develop an understanding of what is being taxed and how often you are required to pay. Keeping your bookkeeping records current makes your life simpler when it is time to pay taxes, and paying on time saves you money on penalties and interest.

Excise taxes are business taxes levied on overall revenue, or the total amount that your business earns from selling products and services before subtracting eligible expenses. Excise taxes are generally levied by city and state governments. Scheduling of tax payments depends on the volume of business you transact. The tax rate for your locality is listed on the tax form that your city and state revenue authorities send to you or on their online payment portals.

Sales tax is another business tax levied on business revenue, but it is paid by the customers rather than by the company transacting the sales. Although the customer pays the tax, it is the responsibility of the business owner to collect the tax, save it and send it to state and local authorities periodically along with a tax form detailing the amount of business revenue being taxed. As with excise taxes, the frequency with which you are required to pay sales tax depends on your business volume.

Income taxes are based on the gross profit that your business earns after subtracting operating expenses from gross revenue. You must pay federal income tax on the profit that your business earns by April 15 of the year following the year in which you earned the income. In addition, most states levy income taxes on business owners based on company profits, although some states do not have income taxes. Business owners are usually required to pay estimated income taxes throughout the year to avoid tax penalties and interest.

Your business must also pay payroll taxes to a variety of state and local agencies, although these taxes are based neither on revenue nor gross profit. Payroll taxes include income taxes, which you fully deduct from employee paychecks, as well as Social Security and Medicare taxes, which your business withholds from employee paychecks and remits along with mandatory employer contributions. In addition, employers must pay state unemployment insurance and industrial insurance taxes, for which they are usually solely responsible.