By: Fred Granillo
Business Counselor/Training Program Coordinator
Guam SBDC
Now that we are into 2014, business owners should be aware of the overall income tax requirements when filing their income tax returns. Plus we will revisit the ongoing requirements for gross receipts and payroll taxes that most businesses must deal with.
Income Taxes
For the small business owner, we always suggest seeking professional tax advice and tax preparation assistance. This should ensure that you have taken advantage of all the available deductions for your business and presented your information as required by the tax regulations. However, every small business owner must be aware which income tax documents are required and expected to be filed so one does not blindly accept the documents filed on behalf of the preparer.
The required income tax return forms for the self-employed include the following:
• Form 1040 – this is the base form that summarizes the net operating results for the business along with other income and calculates the overall tax due or refund.
• Schedule C – the form that summarizes business income and expenses. The figures that go into this form should already be compiled into income and expense categories based on an accounting system.
• Schedule SE – one half of total self-employment taxes is a deduction from gross income and calculated on this form.
• Form 1040-SS – self-employment taxes due are calculated on this form based on the income and expenses from the business operating results.
• Form 4562 – use this form to calculate depreciation only when the business uses or owns assets in the business.
• The above forms can effectively be completed when the business possesses an accounting system; either manual or automated that accurately compiles the income, expenses, assets and liabilities of the business.
Gross Receipts Taxes
Business Privilege Tax imposes the gross receipts tax (GRT) on business activity in Guam. The GRT is imposed on the gross income received by the person (or entity) engaging in the business activity. Here are few key items to keep in mind:
• Once a person or separate legal entity obtains a business license they also obtain a GRT account number on the license. This requires the business operator to initiate GRT Filing.
• Form GRT-1 must be filed monthly, even if no taxes are due – most small businesses file under Lines 2 -8
• Tax Rate: 4%
• Monthly filing due on the 20th day of the following month
• Exemption guideline: maximum exemption - $40,000 of income and gross income limitation of $50,000. This means as long as gross income is less than $50,000 annually, then the small business person can take the exemption the following year. Should gross income exceed $50,000 then the following year the small business cannot take an exemption against their gross income and must pay every month.
Payroll Taxes
The small business owner must have an accurate accounting system of payroll that includes the computation of gross pay and taxes withheld from the employee’s pay that includes income tax withholding, social security taxes, and Medicare taxes. All these withheld taxes are then paid to the respective taxing authorities being Department of Revenue & Taxation and Internal Revenue Service. The timing of the payments depends on the amount of taxes due each quarter. The small business owner should be aware of the required payroll reporting as follows:
• Quarterly: Form 941-SS, Form W-1, and SW-2
• Quarterly Due Dates: April, July October and January
• Annually: W-3SS and W-2’s
