Your Guide to Small Business Taxes

There are 30.2 million small businesses in the US.

If you own a small business, you enjoy an impressive amount of flexibility, personal satisfaction, and profit potential. The downside, of course, is that you have to pay taxes.

If you are filing small business taxes for the first time, you will do well to enlist the help of a tax professional. You will also need to be aware of the types of taxes you will need to file, and how often you need to file them.

Let’s take a look.

While individuals get taxed once a year, most small businesses making more than $1,000 at the end of the year are required to pay on a quarterly basis. The taxes you pay throughout the year get deducted from your total liability when you file your tax return. Penalties and interest will be charged for any payments not made on time.

Quarterly filing dates are April 15, June 15, September 15, and January 15. 

The tax rate for C-corporations is a flat rate of 21% as of 2019. C-corporations get taxed at the corporate rate, with business profits taxed separately from individual owners.

All other types of ownership are “pass-through,” meaning that taxes get levied at the individual owner’s level. This reduces the effects of double taxation.

In LLC’s, sole proprietorships, and partnerships, the business itself does not pay income tax. Rather, owners pay a tax on the business income at their individual tax rate and report it on their personal tax return.

A sole proprietor pays a 15% tax rate. Sole proprietors own their businesses and are solely responsible for their debts. 

Small partnerships pay 23.6%. A partnership structure limits each individual’s personal and financial responsibility. 

Income tax is money that your business will pay on wages, investment income, or gains on the sale of your property. In addition to income taxes, a number of other types of taxes may apply to small businesses. 

If, for example, you have employees, you will need to pay payroll tax on their wages. This includes federal income tax withholding, social security, and Medicare. You will also need to pay federal and state unemployment taxes.

Employment taxes are usually the largest tax businesses pay after income taxes, at a rate of 7.65%.

You will need to pay self-employment tax if you work for yourself and your wages are more than $400 per year. You will also need to pay the total amount for your Social Security and Medicare taxes. Special rules do apply, such as when you work for a church or are a family caregiver.

If you own a brick-and-mortar building, you will need to pay property taxes on it. Property tax is based upon the value of the property, including the land. 

Some businesses are also subject to an excise tax. This is a tax on the sale of certain types of products or services, including fuel, tobacco, and alcohol.

Excise tax is often included in the price of a product or service. The business owner, however, is responsible for collecting taxes and reporting them to the IRS. 

There is no federal sales tax in the US. There are, however, many states and localities who exact them. 

Business owners are responsible for calculating, collecting, and reporting sales taxes to state and local governments. Customers usually pay sales taxes on goods and services at the point of purchase. Ecommerce sellers are required to collect and report sales tax from out-of-state customers.

Businesses may also need to pay Capital Gains taxes on the sale of business investments. Long-term capital gains get taxed at different levels, depending on the income of the business. Short-term capital gains get taxed as ordinary income.

Businesses also need to pay taxes on dividends from business investments. Dividends are payments made by a company to owners of its stock. It is a way for the company to distribute revenue back to investors.

If you run your business efficiently, you will be more profitable. This will, of course, mean that you will be paying more in taxes. 

You can talk to your tax professional about the best ways to keep tax rates lower for your business. You may, for example, wish to offer fringe benefits for employees, which will allow you to reduce the taxable income you would pay in additional wages.

Fringe benefits may include health benefits, educational assistance, and transportation benefits. 

Small businesses can also opt to deduct the full amount of certain property as expenses in the year the company began using them. These include properties used in transportation, production, and manufacturing. It also includes any type of facility used for business or research.

Your company can also claim a healthcare tax credit if you employ fewer than ten full-time equivalent employees and their average wage is under $25,000 per person.

You may also not be aware that you are allowed to deduct auto expenses that are used for business. You can track your annual auto expenses, and then deduct the percentage that gets tied to your business. You can then track your mileage and take a tax deduction for those miles.

Filing small business taxes for the first time can be a daunting task. However, with the right professional and the right attention to your deductions, you can be paying Uncle Sam while turning a profit in no time.

For more information on professional tax services, contact us today.