What Is Tax Compliance and Why Is It Important?
Tax compliance refers to the legal obligation of businesses to file taxes correctly, report income, and meet state and federal tax requirements. Failing to comply with tax regulations can result in penalties, audits, and financial setbacks.
Small businesses in Los Angeles must adhere to both federal tax laws enforced by the IRS and California state regulations managed by the Franchise Tax Board (FTB). Understanding these obligations ensures your business remains compliant and avoids unnecessary legal complications.
Key Tax Obligations for Small Businesses in Los Angeles
1. Federal Tax Requirements
All businesses in the U.S. must comply with IRS tax regulations. Some key obligations include:
- Employer Identification Number (EIN): Businesses must obtain an EIN for tax filing and employee reporting.
- Income Tax: Depending on your business structure (sole proprietorship, LLC, corporation), you may pay income tax as an individual or as a separate entity.
- Employment Taxes: Employers must withhold federal income tax, Social Security, and Medicare taxes from employee wages.
- Self-Employment Tax: Freelancers and business owners without employees must pay self-employment taxes to cover Social Security and Medicare.
- Payroll Tax Compliance: Employers must accurately report and remit payroll taxes to the IRS and state authorities.
2. California State Tax Obligations
Small businesses operating in Los Angeles must also meet California’s state tax requirements:
- California Franchise Tax: LLCs, corporations, and some partnerships must pay an annual minimum franchise tax.
- Sales and Use Tax: Businesses selling goods must collect and report sales tax to the California Department of Tax and Fee Administration (CDTFA).
- Payroll Taxes: Employers must report and pay state unemployment insurance (UI) and employment training tax (ETT).
- Estimated Quarterly Taxes: Self-employed individuals and businesses must make estimated tax payments throughout the year to avoid penalties.
- Business Tax Compliance: Los Angeles businesses must adhere to local tax requirements, including licensing and gross receipts taxes.
Common Tax Compliance Mistakes to Avoid
- Incorrect Tax Filings: Missing deadlines or submitting incorrect forms can lead to IRS audits and fines.
- Not Keeping Accurate Records: Businesses must maintain financial records, receipts, and invoices for at least three years.
- Failing to Pay Estimated Taxes: Many small business owners underestimate their tax liability and end up owing penalties.
- Misclassifying Employees: Incorrectly classifying workers as independent contractors instead of employees can result in legal issues.
- Ignoring State Tax Laws: California has specific tax regulations that differ from federal tax requirements, making compliance even more complex.
- Overlooking Deductions: Businesses often miss valuable tax deductions that could reduce their tax burden.
How Artigas PS Can Help Your Business Stay Compliant
Navigating tax compliance can be overwhelming, but you don’t have to handle it alone. Artigas PS offers expert tax advisory and accounting services tailored to small businesses in Los Angeles. Our team helps you:
- Ensure accurate tax filings and avoid costly mistakes.
- Stay updated with changing IRS and California tax laws.
- Optimize your tax deductions to reduce your overall liability.
- Manage payroll taxes and employee classifications correctly.
- Handle audits and IRS inquiries with professional support.
- Guide you through Los Angeles business tax requirements and local regulations.
Don’t let tax compliance be a burden—let us handle it for you! Contact us today