Taxes, Advertising and Promotion for a Tire Shop

Last Updated on 06.08.2024 by hrushetskyy

TAXES

As a business owner and employer you will be responsible for collecting various state and federal taxes and remitting these to the proper agencies. In addition you will be required to pay certain taxes yourself.
When reading the following sections remember that at the time this manual went to press all tax information reflected current law. But Congress has been passing tax legislation at the rate of one major act every two years. Therefore it is important that you check for any major tax changes before making a decision that will affect the tax structure of your business.

Employer Tax Identification Number

If you employ one or more persons you are required to withhold income tax and Social Security tax from each employee’s paycheck and remit these amounts to the proper tax-collecting agency.
You will need to obtain an employer tax number from the federal government using IRS form SS-4 and if your state has an income tax from the state as well. Call the local numbers of the federal and state agencies listed in the white pages under “United States” and the name of your state. The federal agency will send you your number as well as charts to determine payroll tax deductions quarterly and annual forms W-4 forms tax-deposit forms and an instruction manual on filling out forms. No advance fees or deposits are required.

Income-Tax Withholding

The amount of pay-as-you-go tax you must withhold from each employee’s wages depends on the employee’s wage level the number of exemptions he claims on his withholding exemption certificate (Form W-4) his marital status and the length of the payroll period. The percentage withheld is figured on a sliding basis and IRS percentage tables are available for weekly biweekly monthly semimonthly and other payroll periods.

Social Security (FICA) Tax

The Federal Insurance Contributions Act or FICA requires employers to match and pay the same amount of Social Security tax as the employee does. The table below shows the projected increases you can expect in the FICA tax in the future.
Calendar                               Taxable Tax Rate Percentage

Year	Wage Employer	Employee	Self-Employed
1988	7.51	7.51	13.02
1989	7.65	7.65	13.02
1990	7.65	7.65	15.3

Charts and instructions for Social Security deductions come with the IRS payroll forms. Be aware that Congress has accelerated the requirements for depositing FICA and withholding taxes. Failure to comply subjects a business to substantial penalties.
Four different reports must be filed with the IRS district director in connection with the payroll taxes (both FICA and income taxes) that you withhold from your employees’ wages:
1. Quarterly return of taxes withheld on wages (Form 941).
2. Annual statement of taxes withheld on wages (Form W-2).
3. Reconciliation of quarterly returns of taxes withheld with annual statement of taxes withheld (Form W-3).
4. Annual Federal Unemployment Tax returns (Form 940).

State Payroll Taxes

Almost all states have payroll taxes of some kind that you must collect and remit to the appropriate agency. Most states have an unemployment tax that is paid entirely by the employer. The tax is figured as a percentage of your total payroll and remitted at the end of each year. The actual percentage varies with the state and the employer.
Some states impose an income tax that must be deducted from each employee’s paycheck. As an employer you have the responsibility of collecting this tax and remitting it to the state. A few states have a disability insurance tax that must be deducted from employees’ pay, in some states this tax may be split between employee and employer.
Most states have patterned their tax- collecting systems after the federal governments. They issue employer numbers and similar forms and instruction booklets. As discussed above you may apply for the employer number and various forms and booklets by calling the local office of the appropriate state agency.

Personal Income Tax

Operating as a sole proprietor or partner you will not be paid a salary like an employee, therefore no income tax is withheld from money you take out of your business for personal use. Instead you must estimate your tax liability each year and pay it in quarterly installments on Form 1040 ES. Your local IRS office will supply the forms and instructions for filing estimated tax returns. When applying for the forms also request the Tax Guide for Small Business (Publication 17).
At the end of the year you must file an income-tax return as an individual and compute your tax liability on the profits earned in your business for that year.

Independent Contractors

Hiring individuals as independent contractors requires filing an annual information return (Form 1099) to report payments totaling $600 or more made to any individual in the course of trade or business during the calendar year, if this form is not filed you will be subject to penalties. Be sure your records list the name address and Social Security number of every independent contractor you hired along with pertinent dates and the amounts paid each person. Each payment should be supported by an invoice submitted by the contractor.
Other than licensed real estate agents very few people who perform services on your business premises qualify as independent contractors. If the IRS feels an individual should have been treated as an employee you will be liable for payroll taxes that should have been withheld and paid plus penalties and interest.
Some factors that are reviewed by the IRS to determine if an individual is really an “independent contractor” includes:
1. Does he have his own business license?
2. Does he have cards stationery and a real business address?
3. Does he have a business bank account?
4. Does he sell his services regularly to various customers?

Corporate Income Tax

If your business is organized as a corporation you will be paid a salary like other employees. Any profit the business makes will accrue to the corporation not to you personally. At the end of the year you must file a corporate income tax return.
Corporate tax returns may be prepared on a calendar- or fiscal-year basis. If the tax liability of the business is calculated on a calendar year the tax return must be filed with the IRS no later than March 15 each year.
Reporting income on a fiscal-year cycle is more convenient for most businesses because they can end their tax year in any month they choose. Pursuant to the 1986 Tax Reform Act a corporation whose income is primarily derived from the personal services of its shareholders must use a calendar-year end for tax purposes. In addition most Subchapter S corporations are required to use calendar-year ends.

Sales Taxes

Sales taxes are levied by many cities and states at varying rates. Most provide specific exemptions as for certain classes of merchandise or particular groups of customers. Service businesses are often exempt altogether. Contact your state and/or local revenue offices for information on the law for your area so that you can adapt your bookkeeping to the requirements.
Levying taxes on all sales would present no major difficulties but since this is not the case your business will have to identify tax-exempt sales from taxable sales. Then you can deduct tax-exempt sales from total sales when filing your sales tax returns each month. Remember if you fail to collect taxes that should have been collected you can be held liable for the full amount of uncollected tax.

Advance Deposits

Many states require an advance deposit against future taxes to be collected. For example in California if you project $10 000 in taxable sales for the first 3 months of operation you must deposit 6.5 percent ($650) with the state tax bureau when applying for your sales-tax-permit number.
In lieu of the $650 the bureau will accept a surety bond for that amount from your insurance company. If you have a fair credit record the bond is usually simple to obtain through your insurance agent. The cost varies according to the amount and the risk, 5 percent is a rule of thumb but 10 percent is not unusual for small dollar amounts.
If your state requires a deposit or bond you can keep the amount down by estimating sales on the low side. This is a wise tactic because most new business owners tend to overestimate early sales.

The Sellers Permit

In many states wholesalers or manufacturers will not sell to you at wholesale prices unless you can show them your sales tax permit or number also called a sellers permit. You will usually have to sign a tax card for their files.
Where and how do you get such a permit? Agencies issuing permits vary with each state but generally they are either the Equalization Board the State Sales Tax Commission or the Franchise Tax Board. Contact the entity responsible for governing taxes in your state and apply for your resale-tax or wholesale permit. You will have to provide documentation to prove you are a retailer. Usually your business permit is acceptable.
Your resale permit allows you to avoid putting out money for sales tax on merchandise at the time you purchase it from suppliers. This does not mean you won’t be remitting taxes on the merchandise, it means you’ll be deferring them until you sell the merchandise to your customers. The sales taxes will then be added (where applicable) to their purchases. You then remit it to the appropriate agency using the forms designed for the purpose.
When conducting business across state lines you are not required to collect taxes for any other state except those in which you maintain offices or stores.

TAX REPORTING SUMMARY

Every government entity bureau or agency that has any legal jurisdiction whatsoever over your business requires that you submit something in writing usually accompanied by a payment on a monthly quarterly or annual basis. Here is a list:

Description	Frequency Federal
Income tax	Annually
Estimated income-tax deposits	Quarterly
Self-employment tax	Annually
Income-tax withholding	Quarterly
Income-tax withholding deposits	Quarterly or more often
FICA (Social Security) tax	Quarterly
FICA tax deposits	Quarterly or more often
FUTA (unemployment) tax	Quarterly
FUTA tax deposits	Quarterly or more often State
Income tax (state of residence)	Annually
Income tax (state where business is located)	Annually
Estimated income tax (state of residence)	Quarterly
Estimated income tax (state where business is located)	Quarterly
Withholding tax	Quarterly or more often
Withholding tax deposits	Quarterly or more often
Sales tax	Quarterly
Conservation tax	Quarterly
Retail sales license	Once (when business starts)
County
Personal property business tax	Annually
Merchant’s inventory tax	Annually
Merchant’s license	Annually
City
Sales tax	Quarterly
Transportation tax	Quarterly
Earnings tax	Annually
Earnings tax withholding	Quarterly
Business earnings and profits tax	Annually

 
These taxes don’t apply in every state or city. We have covered the important ones in the foregoing pages. Any other taxes you must pay in your area will come automatically to you. In other words the agencies doing the collecting will find you.

ADVERTISING & PROMOTION

ADVERTISING

Your first step in advertising is to learn as much as possible about the market that you’ll be targeting. Consider these questions when doing this:
1.    Who are my potential customers?
2.    How many are there?
3.    Where are they located?
4.    Where do they now buy the tires and related goods I want to sell them?
5.    Can I offer them anything they are not getting now?
6.    How can I persuade them to do business with me?

Steps to Follow

The advertising process involves four steps:
1.   Budgeting based upon what you can afford and where your advertising and promotion dollars may be most effectively spent.
2.   Determining the best way to reach your prospective customers without wasting your money and advertising on nonproductive audiences.
3.   Choosing a minimal number of points to be emphasized in your advertising.
4.   Gathering facts on the advertising media and the company market to justify the dollars to be spent.

Creating the Ad Budget

How much is enough for an ad budget? One way to approach the question of budgeting is to ask “How long is a piece of string?” It’s long enough to do the job. For most companies this string is measured according to a percentage of projected gross sales. Many businesses peg their ad budgets at 2 to 5 percent of their projected gross sales.
This is generally referred to as the “cost method which theorizes that an advertiser can’t afford to spend more money than he has. For instance if projected gross sales for the first year are $240 000 based on your business plan then using the cost method to determine the advertising budget (figuring 5 percent) you would have $12 000 or about $1 000 a month to work with. For your grand opening you would allocate $2 000.
That may not seem like much and for some companies it won’t be: They need a longer string in order to get the job done. These companies base their advertising budgets on the amount of money needed to move the product. This is called the “task method.” There are many different ways to determine the amount of money needed to move the product. The most common way is through experience.
Companies just starting out however won’t have past records to guide them. Using the task method during startup to determine an advertising budget you’ll have to refer to your business plan and market survey. You want to find out what media will be appropriate and what the cost will be to effectively advertise using those media.

Purpose of Advertising

Advertising provides a direct line of communication regarding your tire inventory to customers and prospective customers. Advertising’s purpose is to accomplish the following:
• Convince customers that your tire dealership is the best.
• Enhance the image of your dealership.
• Point out the need and create a desire for your product line.
• Announce new promotions and sales.
• Reinforce the salespeople’s individual messages.
• Draw customers to your business.
Effective advertisements have six characteristics:
• They are simple and easily understood.
• They are truthful.
• They are informative.
• They are sincere.
• They are customer-oriented.
• They tell who what when where how and why.
Good advertising gets favorable attention from the right people (those who will buy your tires if given the correct incentives). It also creates a desire for your product line and most important causes action. It persuades the prospective customer to visit your tire store.
Consumers may not realize a need for certain concepts until educated by advertising. This is why new ideas require extensive pioneering advertising and it explains in part why advertising expenses are higher during the first few years. If customers do not want a particular product however advertising alone cannot create acceptance.
Advertising has a cumulative effect. Response is slow at first but increases with time. Sporadic splurges rarely pay off. It is much better to advertise regularly and continuously on a small scale than to place large advertisements infrequently.

SELECTING THE RIGHT MEDIA

The advertising media generally used in this business include the following:
•         Personal contact
•         Radio
•         Television
•         Newspapers
•         Magazines
•         Outdoor billboards
•         Yellow Pages
•         Direct mail
•         Specialty advertising (distribution of such items as matchbooks pencils calendars gummed labels telephone pads shopping bags)
•         Other media (catalogs samples handouts brochures etc.)
Choosing the medium or type of advertising is especially difficult for small firms. Big-city television and newspapers are too expensive for a firm that services only a small area (although local newspapers can be used), Magazines unless local usually cover too much territory for a small firm to use them cost-effectively. Metropolitan radio stations present the same problems as TV and metro newspapers but radio has adjusted somewhat by broadcasting multi-sponsored programs. In smaller cities and towns the local radio station and newspaper may cover the market of the small firm very well.
In appraising prospective advertising media or comparing them in effectiveness you should consider the following factors:
1. Cost per contact: how much will it cost to reach prospective customers?
2. Frequency: how frequent should these contacts or message deliveries be? In your business is the single powerful advertisement preferable to a series of constant small reminders or vice versa?
3. Impact: does the medium in question offer full opportunities for appealing to the appropriate senses such as sight and hearing in presenting design color or sound?
4. Selectivity: to what degree can the message be restricted to those people who are known to be the most logical prospects?

Frequency

Frequency is important because it does take a while to build up awareness and break through the consumer’s screening process. People are always screening out messages that aren’t personally relevant picking up on only those things that are important to them.
Repetition is the key word here. It is much better to advertise regularly and frequently in a small space ad than to run a one-time full-page advertisement. We recommend running ads in six-week flights in electronic media or publications if they are dailies or weeklies. If you are advertising in a monthly run the ad for six months straight.

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