Protect Against Collisions and More If you drive a car in the United States, liability insurance must cover it. This type of policy pays for medical and property damage resulting from a vehicular accident. You can also purchase comprehensive and collision insurance to cover other costs. These additional coverages help protect the value of your car should it be damaged. If you are calculating how much it will cost to buy a car, you need to take into consideration the cost of insurance as well. In this article, we’ll review the basics of car insurance and the best auto insurance companies in America, including costs, pros and cons. This is a brief introduction to automobile coverage. Liability Coverage When an accident occurs, liability insurance covers you, household members and authorized drivers for the costs associated with property damage and bodily injury. It covers the cost to repair or replace property damage that you caused. [youmaylike] You are also covered if you cause the bodily harm or death to someone else while you are driving the car. This includes medical expenses, loss of income and specified legal defense costs. Collision Insurance If you are involved in a collision, this type of insurance will help pay for repairing or replacing your vehicle. If the collision is your fault, the coverage may extend to other damaged vehicles involved in the accident. States do not mandate that you buy collision insurance, but your lender or car dealer will if you finance or lease the car. Policies offer a range of deductibles, which is how much you’ll have to pay for repairs before the insurance kicks in. Larger deductibles lower the policy premiums but expose you to more out-of-pocket expenses if a collision occurs. Comprehensive Insurance Comprehensive insurance covers damage to your car that occurs for reasons other than a collision, including theft, fire, vandalism, weather and natural disasters. This coverage is often required if you finance your automobile. You can add riders to this insurance to provide coverage of additional costs, including auto towing, glass repair, daily rental while your car is in the shop and emergency roadside service. As with collision insurance, you can set the deductible on your comprehensive insurance policy to cut your premium costs. Gap Insurance If your car is severely damaged in an accident or other incident, you might find that your comprehensive and collision damage won’t provide enough coverage to pay off the amount you owe on the vehicle. Many policies pay only the fair market value of a totaled car, which might be only 80% of the amount you owe. You can buy additional insurance to plug this gap and ensure you can pay off the car loan in full if the vehicle is destroyed or stolen. Normally, car leases require you to buy gap insurance. If you pay cash or pay off your loan, you can save money by avoiding or dropping gap insurance when no longer needed. Top Five Auto Insurers These five insurers all offer full coverage policies and many additional services. Amica Amica is a superstar among car insurers, winning accolades from Consumer Reports and J.D. Powers. It’s known for handling the claims process smoothly. The average annual cost for full coverage: is $1,360. Pros You can have your car repaired at any body shop, without restrictions. Offers a premium package which, for an additional cost, provides full glass coverage, rental coverage, good driving rewards and identity fraud monitoring. Superior financial stability rating from A.M. Best. Cons Missing some discounts, such as military, low-mileage and prepay discounts. Must speak on the phone to get a quote. Sparse website when it comes to customer education. State Farm State Farm is the country’s largest multi-line insurance company. It excels in customer service and regularly garners high marks from customers. The average annual cost for full coverage: is $1,337. Pros Superior financial stability rating from A.M. Best. Excellent online quote tool, getting customers a quote in as little as five minutes. Easy claim handling and top service from its more than 18,000 agents and its easy-to-use mobile app. Cons Doesn’t offer coverage for new car replacements or uninsured motorists. Missing prepayment and automatic payment discounts. The Hartford While only 11th in size, The Hartford is big when it comes to policy options. It offers rates based on your actual driving as well as full replacement of new cars when destroyed shortly after purchase. Average annual cost for full coverage: N/A. Pros Solid benefits, including superior roadside assistance and towing programs. High marks from customers for their purchase experiences. One of the few insurers with mechanical breakdown coverage for out-of-warranty repairs. Cons Mediocre service interaction according to J.D. Power surveys. Sparse online learning materials. Geico Geico is the second-largest U.S. car insurer. It is a favorite among tech-savvy geeks who appreciate the insurer’s mobile app and excellent online service. The average annual cost for full coverage: is $1,627. Pros Geico offers plenty of ways to save, such as multi-vehicle, driving history and vehicle safety equipment discounts. Special savings for active and retired military members and federal employees. Full-featured mobile app for getting quotes, buying insurance, managing your policy, submitting claims, summoning roadside assistance and making payments. Cons Human help may be in short supply, as just about everything is handled online. No gap insurance is offered. USAA No insurer matches USAA for service to military members. Unfortunately, it's only available to active service members, their families and retired veterans. Average annual cost for full coverage: $896. Pros Superior financial stability rating from A.M. Best. Top-ranked purchase experience score from J.D. Power. Cons Missing gap coverage. Doesn’t offer interior vehicle coverage or new car replacement coverage. Limited availability. The Right One for You Competition in the insurance industry helps drive down prices and prompts insurers to offer money-saving features. For example, your carrier might reward you for a safe driving record and for having a long-term relationship with the insurer. The right insurer for you is highly rated for service, offers the exact coverage you want and does so at an unbeatable price. You should always gather multiple quotes before selecting an insurer, and make sure you get credit for all applicable discounts.
Filing Business Taxes 101
Virtually every business, big and small, must file a tax return. Companies are taxed in different ways compared to individuals, but they both must prepare and file an income tax return. In addition, businesses have some other types of taxes they must pay.
How a business prepares its taxes will depend on the type of legal structure it uses. A sole proprietorship, for example, will have a very different tax preparation process compared to a corporation. As a small business, the tax process can seem overwhelming when you are just getting started. This article is designed to give you an overview of business taxes to establish a good foundation of business tax requirements.
What Are Business Taxes?
Businesses pay several types of federal taxes. Income is perhaps the most well-known kind of tax, but there are other federal taxes companies may need to pay as well.
Income Taxes
Like individuals, businesses are taxed on their income. Unlike individuals, however, enterprises offset that income with their various expenses necessary to run the company. In that way, businesses can actually end up having less “income” than the average individual because those costs are part of the equation.
Businesses, except some partnerships, must file a tax return every year, just like an individual. However, income taxes are actually due periodically throughout the year. As an employee, a company withholds taxes and provides that money to the IRS on your behalf. As a business owner, that responsibility falls to you. You must often make estimated tax payments throughout the year to keep up with your tax obligations. In fact, if you do not keep up with these payments, you will likely end up having to pay a penalty at tax time.
Self-Employment Tax
If you own your own company, you may need to pay self-employment tax in addition to income tax. This type of tax pays for Social Security and Medicare. You must file a Schedule SE (Form 1040) if you are self-employed and you earn more than $400 throughout the year.
Employment Taxes
If you have employees, you will also pay taxes on these individuals as well. You not only provide the employee’s contribution to their income taxes to the government, but you must also contribute to various federal programs.
These include:
- Federal unemployment (FUTA) tax
- Social Security
- Medicare Taxes
There are different collecting and reporting requirements for employment taxes that must also be met. Failure to follow through with these taxes can result in penalties and interest, too. You may even become individually responsible for your employees’ tax payments if you fail to provide the money you withheld to the IRS properly.
Excise Tax
In some industries, you may also have to pay excise tax. This tax is in addition to other types of taxes and only applies to the sale or use of certain goods or services. The manufacture or sale of certain products or the use of specific types of equipment or facilities can trigger excise taxes.
Examples of these types of taxes include:
- Fuel taxes
- Environmental taxes
- Communications and air travel
- Taxes on certain types of trucks or other vehicles
- Lottery or gambling taxes
Many types of businesses can avoid these taxes entirely simply because they are not involved in certain industries.
Why Do I Need to File a Separate Tax Return for a Business?
Under the law, a business (except sole proprietorships and partnerships) is a separate legal entity. That means it has legal rights as if it were an individual. Those rights come along with the responsibility to pay federal taxes as well. Businesses will often have their own tax rates and reporting obligations under the law.
There are a few business structures that are not taxed separately, however. The sole proprietorship is the most common. In fact, there are an estimated 23 million sole proprietorships in the United States. They make up roughly 73% of all companies in the country. This type of business structure is likely so common, in large part, because it is so easy to establish. In most states, you do not have to do anything to create a sole proprietorship — you can simply open your doors and start a business. There are also no separate tax filing requirements for this type of company. Instead, you put the business income and expenses on your personal tax return, on Schedule C.
Sole proprietorships are commonly referred to as “pass-through” entities because the income they earn passes directly through the individual that owns and operates the business. Some corporations (S-Corps) can be set up this way. Partnerships are also a pass-through entity. S-corps require that you file a tax return, even if the company does not pay taxes. While it is generally a good idea to file a tax return for a partnership, they are not required, either.
Reducing Business Taxes: What You Can Claim
Businesses still have the option to assert deductions and credits, just like individuals. However, the average business does not rely on many tax deductions to reduce its tax obligations. Instead, a company’s biggest tax reduction method is the adjustments to their gross income — the expenses of the company.
A business can set out every single expense and decrease its taxable earnings by offsetting those expenses. Costs for a business can be huge, and even though a company brought in, for example, $500,000 last year, if it had $400,000 in expenses, it really only has $100,000 to pay taxes with. As a result, the IRS will only tax the $100,000 left over after considering all of the other expenses. This decreases the tax rate and the total amount of money that is actually taxed.
Forms Necessary to File Business Taxes
The forms you need to file business taxes will depend on the type of business structure you have. Below is a quick chart that provides the form necessary to file income taxes for each type of business.
Limited liability companies are unique because, like corporations, you can choose to be taxed as a pass-through entity, a partnership or a corporation. How you have your LLC set up will dictate which form you should use.
When to See an Accountant Instead of Preparing Your Own Business Taxes
Technically, you never need an accountant to file your taxes. You can prepare them yourself. However, it may be a good idea to use a professional tax preparation service in some circumstances. If you have a sole proprietorship or partnership, your taxes may be straightforward enough that you can do them on your own or with the help of a tax preparation software. Other business structures have much more complicated tax situations that may require professional advice.
Accountants can also provide additional helpful insights for your business, such as spotting tax savings opportunities and predicting trends regarding your income or expenses.
Having a business can make your tax situation very complicated, very quickly. Taxes become even more complex when you have employees, work in specific industries, or have a non-pass through entity, like a corporation. If you are unsure, it is a good idea to speak with an accountant to determine how you should handle your tax obligations.