Business Tax Laws
Tax laws affect any business venture. Your business will be subject to federal and state income taxes and possibly to payroll taxes, self-employment taxes and sales and use taxes. As the owner/manager of a small business, you are responsible for two roles in managing taxes: you are the debtor, liable for any taxes as part of your business obligations, and you are an agent who collects various taxes and passes the funds on to the appropriate government agency.
Taxpayer Identification Number: All business owners, except sole proprietors with no employees, need to obtain a Taxpayer ID #, also called a Federal Employer ID # (use IRS form SS-4). Sole Proprietors will use their social security number in place of the Taxpayer ID number.
Federal and State Income Taxes: The type of legal structure your business employs determines the method of paying and reporting income taxes.
Sole Proprietor: Sole proprietorships do not pay taxes themselves; the owners of the business include the income from the business on their personal tax returns. Thus, the tax rate depends on the owner's income bracket. The owner combines the profit or loss from the business with any other income, exemptions, and personal deductions in order to determine the amount paid. For federal taxes, a Schedule C is attached to the Individual Income Tax Return, Form 1040. Kansas follows these same rules for computing state income tax.
Partnerships, and LLP's: similar to sole proprietorships, taxable income from partnerships is "passed through" to the individual partners. In addition to computing and paying federal and state income taxes on the partners' individual tax returns, the partnership is required to file informational returns: federal Form 1065 and Kansas Form K-65.
Corporation: Unless Subchapter S status is elected (taxes passed-through as in a partnership) the corporation files a separate income tax return and pays the income tax due on federal Form 1120 and Kansas Form K-120. This is in addition to the individual income tax due on salaries of officers.
Self Employment & Estimated Taxes: Sole proprietorships and partnerships must generally pay self-employment taxes on "self-employment income" earned by the business. This tax is in addition to the regular Federal and State taxes discussed above, and is similar to FICA taxes. Use Schedule 1040 SE (filed with Form 1040) to determine the amount of self-employment tax due. Estimated tax payments of both state and federal income tax as well as self-employment tax may also be required.
Sales Tax Number: Kansas businesses are responsible for collecting sales tax from customers on taxable transactions. Taxable transactions include: selling tangible personal property at retail; furnishing installation and repair services on commercial property; and furnishing certain other enumerated services. Apply for a Sales Tax Certificate of Registration using the Kansas Business Tax Application form from the Kansas Dept. of Revenue, (785) 296-2481.
Employer Related Payroll Taxes: For businesses which have employees, payroll taxes must be collected and paid to the IRS and the Kansas Department of Revenue. From an employee's wages, you must deduct their share of FICA and Medicare and, as the employer, you must match the contribution. Employers must also withhold appropriate amounts for federal and state income taxes, and pay federal and state unemployment tax.
This information is intended to summarize federal and/or state tax codes and legislation in language that is clear and easy to understand. It is not intended to replace the federal and state legislation and guidelines it explains. Consult competent professionals (attorneys, accountants, tax advisors, etc.) for current information and advice appropriate to your particular business situation.