The Impact of Business Taxes on Small Businesses
Many entrepreneurs don’t consider the local tax landscape when starting a small business. However, local business taxes can impact your bottom line and overall profitability.
There are several ways to reduce your business’s tax burden. One way is through tax deductions. Another is by maintaining separate business credit cards and bank accounts.
Sales Tax
Sales tax is a big money-maker for Denver, contributing to all city services like schools and roads.
Businesses that sell taxable goods and services in Denver must collect this tax from their customers and send it to the city government every month. This is a rule that all businesses must follow to keep Denver running smoothly.
Business Personal Property Tax
Many small businesses have what’s known as tangible personal property. This could include office furniture, computers, inventory, or machinery. This type of property is subject to certain Denver Business Taxes at the local and state levels and specific tax rules at the federal level.
For example, the IRS allows business owners to deduct the sales and use tax on tangible personal property if it’s used for business purposes. In some jurisdictions, business owners must complete a rendition form and submit it annually to get the deduction. The state of Colorado has also been transitioning to destination tax sourcing for a few years now, so online retailers will have to account for the local sales and use taxes that apply in each city and county they ship to customers.
Business Licenses
Many businesses require licenses and permits on the local, county, and city levels. These could include zoning permits, building or occupancy permits, and signage permits. The local health department may also have specific requirements to be met before a company can start doing business in the area.
In addition to these restrictions, individual states also have their requirements. For example, some states require a business to register for sales tax, wage withholding, and unemployment insurance accounts to conduct business there.
As a result, it is critical to clearly understand all the local, state, and federal requirements before starting a new business. A third-party service can help a business determine the specific requirements for its unique industry, sparing it hours of research and potential compliance headaches.
Business Permits
Starting a business in Colorado can seem overwhelming, considering all the fees and taxes needed. Registering for taxes, obtaining local permits, and getting a business license are just a few of the costs that can add up quickly.
The type of permit or license you need for your business depends on the industry and services you offer. For example, some companies require a state licensing fee. In contrast, others need to register at the city level and obtain specific zoning requirements like a permit for peddlers (selling door-to-door) or permanent outdoor food vendor stands.
Additionally, you might need to get a workers’ compensation insurance policy and unemployment insurance, both of which cost money. You may also need a sign permit, depending on your location.
Tax Incentives
The city provides several business tax credits, grants, and incentives. These programs can include performance-based state income tax credits and customized job training grants for companies that create new jobs in Denver or relocate to Colorado.
These incentives can help businesses offset the city’s business personal property tax and sales and use taxes. They can also cover the cost of offering employee health insurance or paying for employees’ education expenses.
This is an excellent incentive for companies that want to expand their operations in the Denver area and provide opportunities for Colorado residents to continue to work here. At the same time, it will prevent them from competing with out-of-state retailers that can offer lower prices due to their lack of local sales tax.
