Nebraska business owners face a complex tax system at both federal and state levels. This intricate fiscal landscape requires diligent management from company leaders to ensure compliance and maximize financial efficiency. Navigating these overlapping tax obligations demands strategic foresight and meticulous attention to detail from business owners and their financial advisors.
Business owners navigate a complex tax system that operates at both federal and state levels. This taxation system necessitates careful planning from business owners to meet legal obligations and optimize financial strategies.
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Federal Business Taxes
Sole Proprietorship: For sole proprietorships, profits are taxed at the individual income tax rate and the individual is also liable for self-employment tax.
Partnership: The business entity does not pay taxes, but each partner records their share of profits on personal income tax return and is liable for self-employment tax.
Corporation: The profits of a corporation can be taxed twice at the corporate level and again on dividends to shareholders (C-Corp), or some corporations elect pass-through taxation where profits are taxed only on shareholders’ personal returns (S-Corp). Individuals opting for an S-Corp are required to submit IRS Form 2553, also known as the “Election by a Small Business Corporation.” This document serves as a formal request to the IRS, seeking recognition of the corporation as an S-Corp.
Limited Liability Companies (LLC): In Nebraska, LLCs benefit from federal-style pass-through taxation. Members must report their portion of LLC earnings on personal state tax filings. Additionally, members are responsible for paying self-employment taxes on their share of the LLC’s income.
Resources:
- Small Business Online Learning – Internal Revenue Service (IRS)
- Businesses Tax Information – Internal Revenue Service (IRS)
- About Form 2553, Election by a Small Business Corporation – Internal Revenue Service (IRS)
Employer Identification Number (EIN)
A business tax identity is established through an Employer Identification Number (EIN), which facilitates IRS employee tax reporting, business banking, and the acquisition of licenses and permits. This unique identifier is essential for various financial and administrative operations conducted under the business name.
Resources:
- Employer Identification Number (EIN) – Online Application – Internal Revenue Service (IRS)
- Form SS-4 – Application for Employer Identification Number (EIN) – Internal Revenue Service (IRS)
Self-Employment Tax
Self-employed individuals must pay self-employment tax, which is equivalent to the Social Security and Medicare taxes deducted from regular employees’ wages. This tax ensures that independent workers contribute to these federal programs similarly to traditional employees.
It is recommended to seek advice from a tax expert or accountant to fully grasp your business tax obligations.
Self-employment taxes apply to the following common business structures:
- Sole Proprietorship: Pay self-employment taxes on the net income from your business.
- Partnership: Your share of the business’s net income is subject to self-employment taxes.
- Limited Liability Company (LLC):
- Single-member LLC: Pay self-employment taxes on the net income from the business.
- Multi-member LLC (partnership): Each member pays self-employment taxes on their share of the business’s net income.
- Corporation: If you are a shareholder of an S-Corp, any wages you receive from the corporation are subject to payroll taxes but not self-employment taxes. However, any distributions of the corporation’s net income that exceed your wages may be subject to self-employment taxes.
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Nebraska Business Taxes
Obtain a Nebraska Identification Number through online registration or Form 20 and receive a sales tax permit if collecting sales tax. Upon successful registration, the Department of Revenue will provide a unique Nebraska State Identification Number to be used for filing returns, paying taxes, and submitting documentation.
Resources:
- Business Taxes – State of Nebraska
- Starting a Business in Nebraska Tax Registration – Nebraska Department of Revenue
- Register Your New Business Online – Nebraska Department of Revenue
- Form 20 – Nebraska Tax Application