STARTING YOUR FIRST BUSINESS? READ THIS FIRST.
Deciding to start a business or a side hustle can be heady stuff. It’s fun to develop business plans and dream of possibilities, but you must also know your tax information.
So, here are some tax essentials every new business owner should know and how to use them.
We’ll examine the most common types of small business taxes, filing requirements and deadlines, and some resources that can help you.
Common Types of Small Business Taxes
First up, income tax. Every small business, whether a sole proprietorship, partnership, LLC, or corporation, is subject to income tax.
The primary difference in taxes is small businesses can file business income on their personal tax return. All others must file separate business tax returns.
Next is the self-employment tax. This doesn’t apply to everyone, mostly sole proprietors, partners, and LLC members. Of course, there are caveats, so check with a CPA. But these business owners generally have to pay this to cover Social Security and Medicare taxes.
Then, there is the employment tax for businesses with employees. You have to withhold and pay federal income tax, Social Security tax, and Medicare tax for them, even if it is only one. You are also on the hook for federal and state unemployment taxes.
This doesn’t usually apply to hired contractors or part-time employees, but it’s best to check with a CPA. It’s not difficult to run into issues with this tax, so make sure you have a plan.
Last but not least, there are sales taxes. This varies with each state and the type of business you own. It’s enough to say that you need to be aware of them and get help from a tax professional.
Filing Requirements and Deadlines
It’s not enough just to be aware of ordinary business taxes. You have to do something about them. The most important thing is to remember the filing basics.
Sole proprietorships and partnerships will use a Schedule C or Schedule C-EZ. They must file by April 15th unless it falls on a weekend or holiday. In that case, the deadline is usually the next business day.
For LLCs and corporations, the correct filing form varies. The main ones for an LLC are IRS Form 1040 and 1065. Corporations, and even some LLCs, are a different story. There are too many variables to list here, so it is worth getting some help.
But no matter the form, keep an eye on March 15th and April 15th because the tax filing date usually falls on or near there for corporations, depending on the type.
You’ll also need to take care of annual self-employment tax filings (which mirror the income tax deadlines) and sales tax filings that vary from area to area.
You may also have to file employment taxes as well. This happens on the last day following the end of the quarter. Use IRS Form 941 for this.
Help and Resources
Remember, this is a broad overview of small business taxes. But there is much more to learn. Luckily there is no shortage of help.
One great place to start is the IRS website. It has publications and resources specifically tailored to small businesses. There are other online resources as well, such as this blog and various other state and local resources.
Of course, there are lots of tools and software to help with filing and ensure accuracy. However, if you prefer the human touch, look into resources provided by Small Business Development Centers. They often offer free or low-cost assistance to entrepreneurs, including tax workshops, counseling, and guidance on tax-related matters.
As always, getting in touch with a CPA or tax professional with expertise in small business is good. Every enterprise is different with unique circumstances. Being able to get customized help is often an excellent investment.
The Bottom Line
Tax talk isn’t the most enjoyable part of starting a business. But it’s a necessary one. By having a basic knowledge of what to look for and how to get help, you can avoid trouble and even save your business money.