Some businesses will have an accountant or bookkeeper by this stage who will handle these responsibilities. Many businesses won't. Either way, it is helpful to understand the requirements so you can make sure stay in compliance.
This form is used to report and pay state sales tax. If you
registered for a sellers permit, you must complete
this form, even if you only sold wholesale and don't owe sales tax.
Before we begin
The goal of the BT-401 form is to calculate sales tax and then divide it
into the proper categories.
The basic 7.5% state sales tax is actually three state required taxes: 6.25% state sales tax, ¼%
county tax, and 1% local tax.
In addition, if you conducted business in any other county or city that voted to increase its
sales tax beyond 7.5%, there are one or more district taxes with tax rates ranging from .0125%
Usually a quarterly payment and reporting requirement
Usually one month after calendar quarter-end:April 30, July 31, October
31, January 31. A few businesses complete this form annually, large businesses complete it monthly.
What you have to know
Before completing this form online or on paper, you need to know:
Your total sales - with and without sales tax
Your total non-taxable sales
The sales you made in each special taxing district in California (Sales made in districts where you have facilities or people - including your delivery people.)
The Dept. of Tax and Fee Administration doesn't want to know how much sales tax you actually collected - because you are responsible for collecting the right amount. They are only concerned with your total sales.
How to submit
There are two ways to submit BOE-401 and pay sales tax.
Dept. of Tax and Fee Administration
PO Box 942879
Sacramento, CA 94279-7072
Want to pay by credit card? Go to http://www.boe.ca.gov/elecsrv/internet.htm. The regular merchant fee for
credit card transactions (about 2.5%) will be charged to you as a "convenience fee". You can also pay with your credit card over the phone by calling 1-800-2PAY-TAX. The
same fees apply.
Sole proprietors do not contribute to the social security and
Medicare system through payroll deductions. Instead, they pay these taxes
with their federal income tax. Even though this is an annual form,
we are discussing it now because it must be calculated and paid quarterly
with IRS 1040ES.
You don't have to make quarterly payments on social security or Medicare
if your net self-employment income was less than $400.
Quarterly deposit with
Annual reporting requirement. Include Schedule SE with your 1040 personal return.
There are two parts to this tax:
12.4% (.124) of the first $118,500
of net income from your sole proprietorship
2.9% (.029) of ALL net income
If you are used to only 7.65% payroll deductions, self-employment taxes seem high. However, employers have to match employee deductions. Therefore the REAL cost for regular employees is the same as what self-employed people pay.
Earn more than $200,000? There is a .9% Additional Medicare Tax on wages above $200,000 ($250,000 if married filing jointly). Click here for details.
The $118,500 limit is per person. You cannot use your spouse' payroll deductions to offset your social security self-employment tax.
Social security self-employment tax is NOT charged on non-business income (interest or dividends from your personal investments)
Social security self-employment tax is NOT charged on rental or royalty income.
Because your first year's income will be sporadic, you should re-calculate your social security self-employment tax each quarter.
Another job? Use Long Sch SE
If you also earned regular wages (or tips) that were reported on a W-2 form, AND the
total wages plus your business' net income exceeded $118,500, you must complete Part I of
the Long Schedule SE so that you do not pay too much social security tax.
This is because social security taxes are only paid on the first $118,500 of your salary plus
business net income.
Medicare is paid on all net business income, regardless of your salary from another job.
How to complete Sch. SE
What to enter
Leave blank (for farms only)
Calculate your business' net income.
Do NOT include these items as expenses:
Any money that you took from the business as a draw or as "salary"
Social security self-employment tax
Health insurance premiums
Tax deferrals, such as contributions to pensions, profit sharing, etc.
Personal tax exemptions or standard exemptions
Carryover losses, gains, etc.
If you are completing this form to determine your estimated quarterly taxes, include an
estimate of your business net income for the remainder of the year.
Add your spouse's income and any other sources of income.
Same as line 2
Multiply line 3 by .9235. This adjustment is made because
½ of social security is tax deductible.
Multiply line 4 by .153 (.153= .124 social security + .029 Medicare).
If line 4 is more than $118,500 (the cut-off for this year), calculate (118,500 x .129) + line 4 x .029.
If you are completing this to determine quarterly taxes: Enter your results on IRS 1040ES, line 11.
If you are completing final year-end tax returns: Enter your results (line 5) on IRS Form 1040 line 57 and ½ of the amount from line 5 on Form 1040, line 30.
Net income under $1,600? Long Sch. SE
If your net income was less than $1,600 and also less than 2/3 of your gross income,
there is an alternative method of calculating social security self-employment tax. It will
probably increase your taxes, but it will also increase the social security benefits
you are entitled to. The worksheet is on the back of the Schedule SE (Part II).
15% to 39.6% on your share of the business' net income (plus your other personal income).
10% on first $ net income
12% on next income up to:
22% on next income up to:
24% on next income up to:
32% on next income up to:
35% on next income up to:
To avoid penalties
To avoid penalties, you must pay 90% of this year's tax or 100% of last year's tax in normal employment
withholding or estimated tax (this form). There are special requirements if your household income
was over $169,740 or you are a fisherman. Please see 1040ES instructions.
How you should complete the form.
What to enter
Take your share of the the annualized net income that you calculated with
IRS 1040 Schedule SE.
and add any other income you (or your spouse if you file jointly) expect to earn this year.
To avoid IRS fines for incorrect estimates, just use the standard deduction.
For 2017, this is $12,700 for married filing jointly; $9,350 for head of household and $6,350 for single.
Line 1 minus line 2
Multiply the number of personal exemptions by $4,050
Line 3 minus line 4
Tax. See tax rate schedules on page 2 of the instructions or the information
Adjustments for alternative minimum tax, which is usually 0, unless you
had large write-offs.
Adjustments for credits, which are usually 0, unless last year
you had tax credits and they still apply.
For nonresidents (or partial year residents) only.
$108 times the number of adults plus $333 times the number of your dependents.
Line 4 minus line 6.
Unless you had tax credits on last year's tax return (for
joint custody, dependent parent, head of household, etc.) or had installment interest
income, skip lines 9 to 17.
Total tax due: assuming that you had no credits, the same as line 7.
Amount to avoid penalties. Enter either 90% of line 15 or 100% of last year's tax, whichever is less.
Farmers, fishermen and people with income over $169,740, see the form for special instructions.
Income tax that will be withheld during the year through payroll deductions on other jobs.
Total tax that must be deposited with Form 540-ES this year (line 20 minus line 19).
Divide line 21 by the number of quarterly due dates before
next April 15th. For example, if it is June 2,
divide by 3 (June 15, September 15, and January 15). Pay this amount this quarter.
April 15, June 15, September 15, January 15.
There are three payment options for shareholders:
Pay online. To do this, each shareholder must first obtain a customer service number online. You will need your social security
number and your gross wages (for California) from last year's tax return.