Federal, State and Local Taxes
GUIDE: START A BUSINESS IN IOWA | STEP SIX:
Federal, State and Local Taxes
Federal, State and Local Taxes
Taxes… YUCK! Unfortunately, as a business owner, this is a subject you cannot avoid. If you make taxable sales within Iowa, or even outside its borders, you more than likely will have to collect and remit sales and use tax. Because you are self employed, you might be subject to self employment tax. If you have employees, you will need to pay unemployment taxes. All of this can seem very overwhelming to a new business owner. Because of that, it’s always a good idea to speak with a tax professional or legal advisor when setting up your company.
If you operate a business in Iowa and/or the United States as a whole, you will more than likely have to collect and pay taxes. There are two places where these taxes will likely be paid: The Internal Revenue Service (IRS) which is Federal, and the Iowa Department of Revenue (IDR) which is for both State and Local taxes. Refer to the tax section of our Get Your Business Online Guide for more information about sales tax outside of Iowa.
Internal Revenue Service (IRS)
What’s an Federal Employer Identification Number (FEIN)?
An FEIN is essentially the social security number for your business. However, having an FEIN isn’t always required. If you want to separate yourself from the business when you incorporate, separate your business federal taxes from your personal ones easier, or if you just want to prevent potential fraud and theft of your social security number, it is definitely recommended you get an FEIN. Unless you are operating a sole proprietorship, most banks will require a FEIN in order to open a business bank account.
How do I get a FEIN?
FEIN’s are free to obtain through the IRS, and can take anywhere from 4-6 weeks to receive a copy of your EIN in the mail. Want to skip the wait? You can obtain your number immediately if you apply online! Still have questions? Check out these helpful links below:
- Not sure if you need an FEIN?
- Have you lost or misplaced your FEIN?
- Not sure who is a Responsible Party?
SBDC Quick Tip: When you obtain your FEIN, either by mail or online, be sure to keep a copy of your FEIN document in a safe place. If you lose your number, the process of retrieving your number can be very time consuming!
Iowa Department of Revenue (IDR)
Depending on your business type, you may be subject to collecting and paying state Sales Tax, Automobile Rental Tax, Hotel/Motel Tax, Consumer’s Use Tax, Retailer’s Use Tax, Withholding Tax, or even Water Service Excise Tax. Most people need to obtain a Sales or Use Tax permit, but if you aren’t sure you can learn if you need one or not. Most often, you will file for this permit after you have obtained your Federal Employer Identification Number. Make sure to have your Social Security number handy!
After you have obtained your Iowa Tax Permit (also known as a Business eFile Number or BEN), either online or by paper, you can learn about paying your collected taxes on the GovConnectIowa system, as well as filing frequencies and due dates. Remember, receiving your permit in the mail can take anywhere from 4-6 weeks, but you can begin collecting tax immediately once you submit your registration form(s). Speak with a tax or legal advisor about what you need to begin collecting and remitting state and local taxes.
Self Employment Taxes
Unless your business is a corporation for tax purposes, you are classified as self employed. Being self employed, you will need to understand employment taxes. This could include Federal Income Tax, Social Security & Medicare, Additional Medicare Tax, and Federal Unemployment Tax. There are available tools from the IRS to help you determine how much you could owe in employment taxes, as well as determine employment tax due dates.
Located within the Self-Employed Individuals Tax Center, there are plenty of resources available. Here you can learn tips to find a tax professional to assist you with your various returns, as well as access nine interactive lessons designed to help new small business owners learn their tax rights and responsibilities. The IRS Video Portal contains video and audio presentations on topics of interest to small businesses, individuals and tax professionals.
If you have employees in the state of Iowa, you will need to pay unemployment taxes to the Iowa Workforce Development (IWD). Not sure if you have employees or independent contractors? This classification page should help. To set up your unemployment tax account, access IWD’s myIowaUI and create your account. If you have questions, contact the IWD UI Tax Bureau at 888-848-7442 or email [email protected]. Their team has also put together a helpful Frequently Asked Questions page that should be able to answer any question you have.
Iowa Sales Tax
In most areas of the state the sales tax rate is 6%. Local municipalities and counties could potentially charge their own tax of 1% in addition to the state tax rate of 6%. A lot of Point of Sale (POS) systems have information built in to help you track this. If not, the Department of Revenue has an informational page that breaks new start dates, sunset dates, and a tax lookup tool for you. Have questions? Check out this Frequently Asked Questions page.
How to register as a Sole Proprietorship
According to the Small Business Administration, a sole proprietorship is an unincorporated business that is run by one individual who has no distinction between the business and the owner. So, what does this mean? It means that the business owner is entitled to all profits and is responsible for all of the business’s debts, losses and liabilities. Essentially whatever profit you make will be added to your personal annual income, and any debt or liabilities you take on are directly tied to you and not the business (because you are the business).
To register your business as a sole proprietorship, you will need to file what’s called a Trade Name Form with your county recorder’s office. This typically costs under $10 to file and should remain in effect until either you file to end the business or the recorder’s office revokes your filed form. To save y0u some time, we’ve found all 99 recorder websites and have linked them on a single partner profile!
Frequently Asked Questions
Do you have questions about registering your business? You should consider checking out our Resource Navigator. It houses the contact information of 400 of our most helpful partners from across the state, like the Small Business Development Centers, who provide no-cost confidential assistance to Iowa entrepreneurs and small business owners.
There are no temporary event tax permits (craft shows, farmers markets, etc). A sales tax permit is required for any event of public sales, no matter the duration.
If you lose or cannot find your Business eFile Number (BEN), Send an email to [email protected] and provide the business name of your tax permit, Iowa tax permit number (if available), requestor’s name, requestor’s ten-digit phone number, and requestor’s email address. The Iowa Department of Revenue will mail you a copy of your Business eFile Number (BEN), your permit number and instructions on how to file and remit taxes.
No. Your permit, after approval, will remain in effect until you or the department cancels it.
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NOTICE: The information included on this website is to be used only as a guide. It is not intended to cover all provisions of the law or every taxpayer's specific circumstances.
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