If you have a source of income, federal income tax is an inevitability for every individual in the United States. Apart from federal tax, 41 states require their residents to pay state income tax. Normally, you can file federal and state tax returns simultaneously.
States like Texas, Nevada, Washington, Alaska, and a few others don't have a state income tax. In comparison, New Hampshire and Tennessee only pose income tax on dividends and interest. Everyone from an individual to a business is liable to pay income tax.
For marketing agencies, income tax can be surprisingly tricky. For instance, many of the agencies that we work with are taxed as S Corps. S Corps come with a unique set of requirements and considerations, such as reasonable owner's compensation.
If you are shopping in the United States, you may see sales tax levied on certain items. The sales tax is an important revenue generation source for states and municipalities.
For example, marketing agencies that offer pay-per-click (PPC) advertising services, such as Google Adwords, may be subject to sales tax. New Mexico, South Dakota and West Virginia, for example, implement taxes on these services, especially if you charge commissions or other fees for placing PPC ads.
Since Google generally does not charge tax on Adwords, some states require agencies to charge their clients sales tax. While some states don’t charge sales taxes on such advertising services, states such as California and New York charge taxes on certain qualified print materials and some finished artwork.
Marketing agency owners who own any type of real estate —such as an apartment, house, commercial shop, or a building — must pay property tax. The rate of property tax varies significantly from state to state with a rate dependent on the city, town, or county.
The property rate in different localities may differ because the tax is generally imposed on the value of the property. Property value is typically different from the market-value, which means that property owners may pay higher or lower tax based on the evaluation by authorities.
What tax forms do marketing agencies need?
Personal income and business income is regarded as two separate sources of income. Commingling funds is a common accounting mistake many marketing agencies make, and it posits a serious problem with legal implications. For instance, limited liability companies could lose their liability protection — due to “piercing the corporate veil” — because you’re exposing your personal assets.
Like everyone else, marketing agency owners and staff may be required to fill out the following employment forms:
Another common tax return form is form 1120 used by C Corporations for income tax. Unlike S Corporation, whose profits are passed through to shareholders, the profits of a C Corporation are taxed separately from its owners under subchapter C of the Internal Revenue Code. C Corporations are owned by shareholders with a board of directors that make decisions and oversee policies. Its profits are taxed separately from its owners under subchapter C of the Internal Revenue Code.
Independent contractors and freelancers are required to submit W-9 forms — which is a record of your name, address, phone number, social security number of tax identification number. Marketing agencies need to hold on to W-9 forms when they hire freelancers, subcontractors or vendors. While the IRS does not require the W-9 form when it comes time to tax filing, agencies need the form on hand when they submit 1099 to record payments of $600 or more.
What tax deadlines and extensions marketing agencies should know?
During the first quarter of every year, there is a lot of activity because many tax deadlines for businesses fall in the first quarter. Historically, April has always remained important because it is the month when individual taxes are filed. The last day to file individual 1040 tax form is generally April 15th.
If you own a business, it is equally important to keep an eye on April 15th deadline, which is when C Corporations are required to file their tax returns. For other marketing agency entities, such as S Corporations, the deadline to file the income tax return is March 15th. In 2019, the government has extended the dates of tax filing for C Corporations to October 15th, and the S Corporation extended deadline is September 15th.
Typically, most deadlines end by April 15th. A CPA can consult on which tax forms are due when. They also can help you file for an extension, or calculate estimated tax payments, if required.
What documents do marketing agencies need for tax preparation and planning?
Save time (and money) before consulting a tax professional by providing all of your financial and personal information necessary, including social security numbers and dates of birth of your family members.
Provide any information about the sources of your income:
Additionally, compile as much information that you can to increase tax refunds, such as IRA contributions, energy credits and student loan interest.
It’s also helpful to organize information about all of the taxes that you've paid, from state and local taxes to real estate tax and personal property tax. Do you have any other tax deductions and credits that could aid in a tax refund? This could include advance child tax credit, child care costs and education costs.
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