A partnership agreement is made between two or more partners, who mutually agree to set-up a business or become a part of it after the business takes off. All the parties entering a partnership deed become the owners of the company, and hold the power of decision-making. The deed specifies the mode of profit sharing, disputes solving, admission of other partners into the company in future, and various other related issues. In a partnership business, the business and its owners are treated as the same entity by the law.
Partnership agreements are easy to establish, but need absolute adherence to tax rules from the owners’ side. Most people entering into partnership deeds are relatively new in business and lose the track of legalities that need to be fulfilled for a hassle-free operation of the firm. This article aims at educating such owners about some basic tax rules that must be adhered to avoid troubles for the firm and themselves in future. Whether the firm is a General Partnership firm, Limited Partnership firm, or a Joint Venture, adherence to tax rules is necessary.
These taxes are broadly classified into two category Payroll taxes and Employer Paid taxes. Payroll taxes are deducted by the employer from the employees’ salaries and Employer Paid taxes are directly paid by the employer.
There are two major Payroll Taxes: Payroll taxes and Social Security and Medicare taxes.
Payroll Taxes; There are two types of payroll taxes – Withholding taxes and Security and Medicare taxes. To fulfill withholding tax obligations, employers must deduct taxes from their employees’ salaries and send the amount to the authorized government agencies.
Security and Medicare taxes are deducted by the employers’ from their employees’ salaries. In this case, the employers however have to pay an equivalent amount to the government.
Employer Paid Taxes; These taxes are paid by the employer and are not deducted from the employees’ wages. Three major employer paid taxes are Federal Unemployment Tax (FUT), State Unemployment Tax (SUT), and Federal Income Tax (FIT). The first two taxes are applicable for most of the employers and are charged to them at different rates. Amount of Federal Income tax payable by the employers depends on the nature of their businesses and business structures (whether the company is established as partnership, proprietorship, corporation or it is limited).
Besides, there is a different category of taxes applicable for retail sales and particular services: Sales and Use tax. The businessmen add such taxes to the cost of products or services that they sell. The businessmen collect such taxes from the customers upon selling goods to them and then hand the amount collected to the authorized government agencies. Manufacturers and wholesalers are exempt from such taxes; only the distributors collect such taxes from the customers.
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