Some Tax Basics for Small Business Owners

One of the issues you have to deal with when running a small business is to understand and fulfill your tax responsibilities. Filing and paying business taxes is more complex than filing and paying personal tax. The process is often a little intimidating to small business owners. 

Types of business taxes

Business taxes generally include federal, state and local taxes with the largest part of your tax burden being to pay federal taxes to the IRS. These federal taxes consist of six different types: income tax, self-employment tax, employment tax, excise tax, sales tax and property tax. 

All businesses have to file an income tax return. Self-employment taxes are social security and Medicare taxes. If you have employees, you have to pay employment taxes, which include federal unemployment taxes, federal income tax withholdings and Social Security and Medicare taxes. 

Income tax relates to business structure

What types of tax you pay, how much you pay, when you have to pay and how you pay all relate to the legal structure of your business (Sole Proprietorship, Partnership, C-Corporation, S-Corporation, or a Limited Liability Company (LLC). 

C corporations pay income tax at the corporate rate but all the other entities are taxed at the individual rate. For example, sole proprietors report business income and losses on their personal tax returns and business profits are taxed at their personal income tax rate. 

No matter what type of business entity you have, you will be required to pay quarterly estimated taxes if you expect to owe income taxes of $1,000 or more. Corporations only have to pay quarterly estimated taxes if they expect to owe $500 or more. 

If you are unable to pay your quarterly estimated taxes, you can be hit with interest and penalties. Fortress Tax Relief’s tax resolution experts will be able to help you find a business tax relief solution if you’re unable to pay on time.

Paying quarterly estimated taxes means you have four deadlines but it also means that when your yearly tax deadline comes around, you will already have paid three-quarters of the tax you owe for the year. 

Before you file

When you have finished filling in a return, you should always check and make sure you haven’t missed anything. Secondly, you need to keep an eye on the due date as you need to make sure to submit on time. 

It is worth taking time to find out what business expenses you’re entitled to deduct from your taxable income. For example, if you can prove that a vehicle is used for business purposes, you can deduct the operational costs. If you don’t deduct what you’re entitled to, you can end up paying more tax than you should. 

Business income tax filing methods

If you are filing a business tax return, you can e-file using one of the options available from the IRS. Your option will depend on the type of business tax return you’re filing.

Your tax preparer can e-file for you or you can use business tax return software to prepare and submit your return. 

How to pay business taxes 

By enrolling in the Electronic Federal Tax Payment System (EFTPS), you are able to pay all your federal tax payments online. You can make an Electronic Funds Transfer (EFT) through your tax preparer or by using tax preparation software. 

The process of filing and paying taxes is possible for you to navigate on your own as a small business owner. However, many small business owners would rather rely on someone’s knowledge to do their taxes so they can spend their time on more profitable activities like growing their businesses. 

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