How To Manage Your Business Taxes

If there’s one thing that’s certain about running a small business, it’s that your taxes will become much more complicated.



Not only do your income taxes increase in complexity, but you also have to deal with additional types of taxes you’ve never had to deal with before.



However, regardless of the increased complexity of the taxes you now face, it’s still your responsibility as a business owner to understand your newfound tax obligations and manage them efficiently.





Types Of Business Taxes



Here are the major types of small business taxes that you’ll have to manage as a business owner:







Income Tax



Business owners and non-business owners alike pay income taxes, but income taxes are generally more complicated for business owners.



This is because business owners have to track and self-report all their business income and losses on their tax returns. This is different from an employee, who simply has to input the information from their W-2 into their tax software.



Of course, business owners could be issued 1099s reporting all or some of their gross business income, but no one is keeping track of their business deductions for them.



Additionally, since business owners are self-employed, they have to make sure that they’re paying enough money to the government throughout the year in the form of quarterly estimated tax payments. While employees automatically have taxes withheld from their paycheck every pay period, the IRS expects business owners to make estimated tax payments on their own every quarter.







Self-Employment Tax



On top of income taxes, business owners who are sole proprietors—meaning they report all of their business income and expenses on the Schedule C attached to their own tax return—are subject to the self-employment tax on their net business income.



The self-employment tax is the combination of the 12.4% Social Security tax and the 2.9% Medicare tax. While employees split this tax burden with their employers, business owners have to foot their entire Social Security tax and Medicare tax bill—92.35% of their net self-employment income.



Of course, the larger Social Security component of the self-employment tax is only assessed on your self-employment income up to the Social Security wage base for the year. This base is $160,200 for 2023.







Payroll Tax



If you have employees working in your business—and that includes you, if you’re on payroll—you’ll have to withhold and pay payroll taxes on their wages.



Here are the federal payroll taxes:




Social Security Tax – 12.4% on the employee’s wages, up to the Social Security wage base for the year; split equally between the employer and the employee



Medicare Tax – 2.9% on all of the employee’s wages; split equally between the employer and the employee



Additional Medicare Tax – 0.9% on employee’s wages over $200,000; paid by employee



Federal Unemployment Tax – 6% on employee’s first $7,000 in wages; paid by employer




Employers may also have to withhold federal income tax, state and local income tax, and other state- or local-level taxes as part of their payroll tax obligation.







Sales Tax



If your business sells goods to the public and your state imposes a sales tax, you will likely be responsible to collect and remit sales tax to the state.



Don’t be tempted to withhold sales tax from your customers at point of sale and then fail to remit it to the government. State taxing authorities take this very seriously and could shut down your business if you attempted something like this.



Note that in some states, the sale of services, as well as goods, is subject to sales tax.








Filing And Paying Business Taxes



In general, staying in tax compliance for any given tax has two major components: filing a tax return and paying the tax. If you fail to do either one of these, you could be looking at significant penalties and interest from the IRS on top of the taxes you owe.



Of course, note every business pays tax in and of itself. Passthrough entities such as partnerships and S corporations, for example, are typically not liable for any federal income tax because they “pass through” their income to their owners, who pay tax on this income on their personal return. However, partnerships and S corporations must still file a federal income tax return every year.



The table below shows the major federal tax and payment deadlines for small businesses.



Tax Return or Form Filing Deadline Payment Deadline Who Must File Schedule SE (attached to Form 1040 or Form 1040-SR) April 15 of the following year with possible extension to October 15 Quarterly estimated payment deadlines throughout the year; all tax due by April 15 of the following year All businesses taxed as a sole proprietorship, as well as some partners in partnerships Form 1120, U.S. Corporation Income Tax Return April 15 of the following year with possible extension to October 15 Quarterly estimated payment deadlines throughout the year; all tax due by April 15 of the following year All businesses taxed as a C corporation Form 1120S, U.S. Income Tax Return for an S Corporation March 15 of the following year with possible extension to September 15 None, since S corporations generally do not pay federal income taxes All businesses taxed as an S corporation Form 1065, U.S. Return of Partnership Income March 15 of the following year with possible extension to September 15 None, since partnerships generally do not pay federal income taxes All businesses taxed as a partnership Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return January 31 of the following year Quarterly deadlines throughout the year Businesses that paid wages of $1,500 or more in any calendar quarter or that had at least one employee for at least some part of a day in any 20 or more different weeks during the year Form 941, Employer’s Quarterly Federal Tax Return Quarterly deadlines throughout the year Monthly, semi-weekly, or (rarely) next-day Business that paid any wages subject to federal income tax withholding, the Social Security tax, or the Medicare tax



Keep in mind that the table above shows only the major federal tax and payment deadlines. 



There may be other federal tax requirements based on your specific business—for example, if you own an indoor tanning salon, you’ll have to collect and remit the 10% indoor tanning services excise tax and file Form 720 quarterly.



And of course, your business may be subject to state and local tax filing and payment deadlines, as well.








How To Manage Your Business Taxes



The first step in managing your business taxes is to determine what taxes you and your business are liable for, along with the filing and payment deadlines for these taxes.



To do this, set aside some time to understand the tax rules as they pertain to your particular business and make a list of all the taxes your business is subject to—whether income, self-employment, payroll, sales, or some other tax—along with the following information for each of these taxes:




The tax return form



The tax return form instructions



The tax return deadline



The tax payment deadline



The tax payment instructions




Take the time to review each of these tax forms with their instructions and familiarize yourself with the process of completing the required returns and making the required payments.



I’d recommend that you make reminders to yourself of all the tax deadlines you have throughout the year, so you don’t miss them. And of course, when you see one of these tax deadlines coming up in your calendar, carve out time in your schedule to file the required return or make the required payment before that deadline.



Of course, this is easier said than done. If doing your own small business taxes sounds overwhelming, consider reaching out to a tax professional who can manage your business taxes for you, so you can focus on your business.



While a good tax professional won’t be cheap, they can take the headache out of the process for you and ensure that you avoid the nasty penalties that come with failing to comply with your business tax obligations.
















Save Money On Your Small Business Taxes



Get $50 off professional tax services from Block Advisors



















Lendio may receive compensation from H&R Block for referring you to their services.







Information provided on this blog is for educational purposes only , and is not intended to be business, legal, tax, or accounting advice. The views and opinions expressed in this blog are those of the authors and do not necessarily reflect the official policy or position of Lendio. While Lendio strivers to keep its content up to-date, it is only accurate as of the date posted. Offers or trends may expire, or may no longer be relevant.
The post How To Manage Your Business Taxes appeared first on Lendio .