State Tax

• Sole proprietorships in Alabama pay state income taxes. The income tax is paid annually, with the tax year going from October 1 to September 30. There is no separate filing for a sole proprietorship. The business owner simply files his individual income tax.
  
  

Sales Tax

• If the sole proprietorship sells a product or provides a service and collects sales tax on the sales or service, the taxes pay out monthly. The sales tax is due on or before the 20th of the previous month. If the business owner has a business where one thousand dollars a month or more averages out, the business owner must estimate the sales tax prepay by the 20th of the month.
  
  

Business Privilege

• Alabama has a business privilege tax. In many ways, this is similar to a franchise tax. This tax is due no later than March 20 each year. However, sole proprietorships in Alabama are not subject to the business privilege tax.
  
  

Unemployment Tax

• Sole proprietorships in Alabama are exempt from having to pay unemployment tax if there are no employees, other than themselves. However, if the sole proprietorship has employees, he withholds various taxes, paying them out on a quarterly basis.
  
  

FICA

• A sole proprietorship with employees must withhold federal income tax and Medicare, which are then paid out either monthly or quarterly. As of April 2008, all payments to the state regarding withheld taxes are filed electronically. Failure to do so can result in a penalty for non-filing.
  
  

Property Taxes

• All property in Alabama is subject to the Alabama Property Tax. Under Alabama definition, property applies to real estate, as well as tangible and intangible assets. Inventory, however, is usually exempt from classification as property, since the inventory may be sold between one year and the next. In Alabama, property taxes are due annually.
  
  

Self-Employment

• Sole proprietorships operating in Alabama are subject to the Alabama self-employment tax, which is paid annually. The self-employment tax consists of Social Security and Medicare taxes. Individuals employed by businesses have half of their Social Security and Medicare paid by the employer, but self-employed individuals must pay both the employee portion of the taxes, as well as the employer portion.