Franchisee businesses, which include franchise restaurants, operate under a variety of structures. The franchise’s structure, along with its assets and earnings, will determine its tax obligations. A primary quality of a responsible business owner, which includes owners of franchise restaurants, is that they know about and fulfill their tax obligations.
It is important for a franchise owner to understand their tax obligations and how the fees for franchising are treated for tax purposes. Additionally, a franchise owner must review the reporting requirements for their income tax and capital gains tax. As mentioned previously, the tax requirements for a franchise, such as a franchise restaurant, will be determined by its business structure, earnings, and assets.
If you are new to franchise businesses, then you may not fully understand what taxes you are required to pay as the owner of a franchise restaurant. If that is true, then you will find the following information extremely useful.
What is Franchise Tax and What Taxes Does a Franchisee Have to Pay?
Depending on what industry it operates in, a franchise business may need to pay a variety of taxes, however, the purpose of paying the taxes remains the same, which is to keep the privilege of doing business in a particular state or city.
Unlike other businesses, franchise businesses are not taxed based on profit, which means that even a franchisee that makes a loss must pay their taxes. A flat fee, the taxes to be paid by the franchise are typically based on the net worth or gross receipts of the company, which is the business done by a company in the city of a state which imposes the tax.
The taxes for a franchise will vary depending on its structure, however, the taxes to be paid will be limited to the following:
Income Tax
This is a tax paid by the company which is separate from the owner’s personal income. This tax must be paid by all corporations that earn an income from sources within the state, even if they are not involved in their operation.
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Capital Gains Tax
If at any time in the future, you decide to sell your franchise restaurant, you will need to pay capital gains tax. This tax will apply to your franchise business if it makes a profit on the sale after the deduction of the cost to purchase or set up the franchise.
However, depending on your business structure and financial circumstances, you may be eligible for small business concessions, which will help minimize or eliminate the profit on the sale.
If you are confused about which of the above taxes apply to your franchise business and how to pay them to meet your tax obligations, then you’d do well to use outsourced solutions help with business tax processing for your franchise restaurant.
Following is why using an outsourced solution for business tax processing is a good idea for your franchise restaurant.
Why Outsourced Solutions are a Good Option for Business Tax Processing for Your Franchise Restaurant
For many franchise businesses, which likely includes your franchise restaurant, business tax processing is not a core competency. Unfortunately, that does not relieve you from your responsibility of keeping adequate control over tax processes. The good news is that you can fulfill your tax obligations and stay compliant by partnering with an outside agency to handle tax functions or business tax processing.
There are several reasons you’d want to partner with an outsourced tax processing solution for your franchise restaurant including:
Sales Tax Return Services: An outsourced taxation solution can help your franchise restaurant stay compliant with tax processing requirement within your state
Full-Service Reporting: Get reports on your business tax statements tailored to the needs of your franchise restaurant
Business Tax Form Submission—With an outsourced help for business tax processing, you can ensure the submission of the forms you need to comply with tax standards where they’re needed.
At Global Shared Services, we have some of the best talent and software in the world for business tax processing. With us, you get quality tax processing services that you can trust, delivered by our experienced team of professionals and tailored to the needs of your business.
Outsourcing your franchise restaurant’s business tax processing to us will provide you with streamlined processes and the ability to scale through operational efficiencies. To learn more, get in touch with us today.