The Beginner’s Tax Guide For Small Business
If you're new to small business taxes, it's important to know what to expect when it's time to file. Start with this beginners tax guide to learn the basics of taxes for small businesses.
Need help with small business taxes? If you’re filing a tax return for your small business, we’ve got you covered. Business taxes can include complex rules and significant penalties for errors, so it’s important to get corporate taxes right the first time around.
This small business tax guide breaks down everything you need to know about small business taxes, including which business taxes you have to pay, when taxes are due, and how to lower your tax liability with tax deductions and credits.
Table of Contents
- What Are Small Business Taxes?
- How Much Do I Have To Make To File Small Business Taxes?
- Types Of Small Business Taxes
- Important Tax Deadlines
- Do I Need An Accountant To Do My Taxes?
- How To Calculate Small Business Taxes
- How To File Small Business Taxes
- What Are Tax Audits?
- Bonus Small Business Tax Preparation Tips
- The Bottom Line On Small Business Taxes
- Small Business Tax FAQs
What Are Small Business Taxes?
Small business taxes may include federal and state income taxes, payroll taxes, excise taxes, and self-employment taxes. Tax funds are then used by federal, state, and local governments to pay for programs such as Medicare and Medicaid, Social Security, and public schools.
How Much Do I Have To Make To File Small Business Taxes?
Generally, small business owners must file tax returns when they earn $400 or more in self-employment wages. However, for most pass-through business entities, including sole proprietorships, S corporations, and partnerships, business earnings are taxed as personal income.
Whether you have to file personal income taxes depends on your filing status, income tax withholding, and gross earnings, as the filing thresholds differ based on these factors.
Types Of Small Business Taxes
Even if you hire an accountant, it’s a good idea to have a general understanding of small business taxes. Here’s an overview of the different types of small business taxes.
Important Tax Deadlines
If you’re unable to pay your tax bill, you shouldn’t avoid filing your taxes. Not only will you owe more in penalties and interest, but failing to pay or respond to the IRS could result in tax liens and wage garnishments. Your best course of action is to file on time, pay your tax debt as soon as possible, and keep communication open with the IRS.
Here is what a normal tax year looks like:
|Federal Income Tax Extension
|Income Tax w/ Extension
|Estimated Quarterly Taxes
|April 15, June 15, September 15, January 15 (of the following year)
|April 30, July 31, October 31, January 31
If a deadline falls on a holiday or weekend, taxes must be filed and paid on the next business day.
When To File An Income Tax Extension
You may want to file a tax extension in some scenarios, such as:
- You have missing tax information
- You have potentially inaccurate information
- You plan on being overseas
- Unexpected scheduling issues came up
Filing for an extension does not give you additional time to pay any taxes due to the government, so make sure you pay by the current tax deadline. Otherwise, you will accrue penalties and interest that increase your tax liability. Failure to pay your taxes can also invalidate your extension.
To file an extension, simply submit the correct form to the IRS by the income tax deadline. Use:
- Form 4868 if you are self-employed, a contractor, or a single-member LLC
- Form 7004 if you run a corporation, partnership, or multimember LLC
Do I Need An Accountant To Do My Taxes?
While it is certainly possible to prepare and file your taxes yourself, there are several benefits to hiring a professional tax preparer or accountant.
Accountants and tax professionals are up-to-date on the latest tax laws, so you won’t have to worry about keeping up with changes in the tax code that could affect your return. Accountants and tax preparers are also experienced; they know what forms your business needs to file and are aware of important tax deadlines to help you avoid unnecessary penalties and interest.
It may be tempting to do your own taxes to save money. However, an accountant or tax pro can find deductions that can ultimately save you money. And if you’re already prepared for tax season by using accounting software, running your reports, and keeping up with important documentation, you’ll reduce the number of hours — and the money spent — having a professional prepare and file your taxes.
How To Calculate Small Business Taxes
To calculate small business taxes, you’ll need to know your business structure and which taxes your business is liable to pay. Even if you plan to hire an accountant, it’s never a bad idea to have an understanding of what you owe and what factors contribute to your tax debt. Let’s take a look at how to calculate taxes as a C-corporation or a pass-through business.
How Taxes Work For C-Corporations
C-corporations are unique in that taxes are first deducted at the corporate level. If dividends are paid, shareholders are required to pay taxes on these dividends. This is known as double taxation.
However, this is not always the case. If the corporation does not distribute dividends, the C-corp will only be taxed as a separate business entity. The business must also be profitable for double taxation to occur.
How Taxes Work For Sole Proprietors, Partnerships, & S-Corporations
Most small business owners have their companies set up as pass-through businesses, such as a sole proprietorship, partnership, or S-Corporation. Some LLCs also qualify as pass-through businesses.
A pass-through business does not pay corporate income tax. Instead, shares of the company’s profits are “passed through” to the owners of the business. These profits are reported as income and are taxed at the personal income tax rate. Pass-through businesses avoid the double taxation that often applies to C-corps.
How To File Small Business Taxes
By this point, you should have a better grasp of small business taxes. The next step? File your tax return.
The internet has made it easier than ever to e-file your taxes, access tax forms, and resources, and even connect with tax professionals. Now, let’s take a look at the steps required for filing your small business taxes. Whether you’re doing your own taxes or using an accountant, read through this section so you can be prepared this tax season.
What Are Tax Audits?
Tax audits are IRS-led assessments used to verify the accuracy of tax returns.
In many cases, the IRS will audit a business on a random basis as a part of its research efforts to generate tax return statistics from a broad selection.
In other cases, there’s something wrong with your business’s tax return or someone associated with your business filed a conflicting tax return that requires additional scrutiny.
How To Avoid A Tax Audit
To avoid business tax audits, accurate filing and record-keeping are required. However, as some tax audits are conducted on a random basis, it’s impossible to completely avoid them. If your business tax returns are audited, the IRS will reach out to you via mail and will typically ask for documents that support the claims on your returns.
You should be able to produce supporting documentation if you have kept records for the recommended minimum of at least three years (though, in rare cases, the IRS may audit returns that are older than that).
Ideally, you and a tax professional should go over your returns to review for accuracy and completion before it is turned in. If not, there’s a chance that your business return may contain errors that trigger an audit.
Bonus Small Business Tax Preparation Tips
In addition to having all of your documents ready, there are a few other things you can do to be prepared for tax season.
The Bottom Line On Small Business Taxes
Careful planning and preparation can make tax time a breeze. The IRS provides plenty of forms, articles, and resources to help you navigate the complexities of small business taxes.
However, if you can’t find the time to devote to ensuring your tax return is accurate, don’t hesitate to reach out to a professional, such as an accountant or a tax preparer. Although this is an additional expense, you’ll save time on preparing your taxes, avoid making costly mistakes, and may even find additional credits and deductions that can lower your tax liability.