Filing small business taxes may seem like an overwhelming and stressful aspect of owning a business, especially if you have just gotten up and running and still learning the ropes. It does not have to be, though. As long as you understand all aspects of your small business’s finances — including how small business taxes work — the whole process may be less confusing than you believe.
This guide will walk you through everything you need to know about filing your small business taxes for the first time.
5 Common Small Business Tax Filing FAQs
All businesses need to file taxes every year, but figuring out which you need to file may be rather confusing. Here are answers to some of the most common questions many small business owners have regarding their taxes.
1. What taxes do small businesses need to file?
Usually, the form of business you operate will determine the type of taxes you must pay. However, in general, small businesses often need to file the following taxes:
Income Taxes
This federal income tax is referred to as the “pay-as-you-go” tax, meaning you must pay these taxes as you receive or earn any business income during the year.
Estimated Taxes
These are quarterly tax payments based on the filer’s earned income. Estimated taxes are usually used by small business owners, independent contractors, and freelancers who do not have taxes automatically withheld from their earnings.
Self-Employment Taxes
This tax consists of Social Security and Medicare taxes primarily for individuals who work for themselves. Payments to the self-employment tax contribute to an individual’s coverage under the Social Security system. This coverage includes retirement, survivor, disability, and hospital insurance (Medicare) benefits
Employment Taxes
If you have employees, you will need to pay specific employment tax responsibilities, including Medicare and Social Security taxes, Federal Income Tax withholdings, and Federal Unemployment (FUTA) Taxes.
Excise Tax
Depending on your business, you may also have to pay excise taxes. These taxes only apply to specific goods and services, including environmental, fuel, communications and air transportation, manufacturer’s taxes on the sale or use of various goods, and taxes on the retail sale of tractors or heavy trucks.
If you are unclear as to what taxes you may be on the hook for. Consider working with a tax professional that can help you figure out exactly what tax returns you need to file.
2. Which tax forms do small businesses need to file?
Typically, the tax forms you will need to fill out will depend on your business type. For instance, if your small business is structured as a sole proprietorship or a limited liability company (LLC), you will need to complete IRS Form 1040 (Individual Income Tax Return), while an S Corporation will need to complete IRS Form 1120 S (U.S. Income Tax Return). In addition, you may need to complete the following small business tax forms:
Self-Employment Tax Forms
Schedule SE (Form 1040) is used to figure out the taxes due on net earnings from self-employment.
Estimated Tax Forms
This requires Form 1040-ES.
Social Security and Medicare Tax and Income Tax Withholdings
This requires Form 941 (Employer’s Quarterly Federal Tax Return), Form 944 (Employer’s Annual Federal Tax Return), or Form 943 (Employer’s Annual Federal Tax Return for Agricultural Employees).
Federal Unemployment (FUTA) Tax Forms
This requires Form 940.
Excise Tax Forms
The form you use to file your excise taxes will depend on the goods or services you provide. For instance, these forms may include Form 720 (Quarterly Federal Excise Tax Return), Form 2290 (Heavy Highway Vehicle Use Tax Return), or Form 8849 (Claim For Refund of Excise Taxes Return).
When completing these forms, always make sure you follow the tax return instructions and verify if e-filing is possible. It can help you speed up the process.
3. What happens when you do not file business taxes?
If you fail to file your taxes or do not pay enough, you may be facing stiff penalties and numerous consequences, including:
Late Payment Penalties
These penalties are typically .5 of 1% of your unpaid taxes per month.
Interest on the Taxes Owed
You will owe the federal short-term rate plus 3% with interest compounding daily.
Late Filing Penalty
This penalty will usually be 5% of the unpaid taxes for every month or part of a month that a tax return is late. The penalty will begin accruing the day after the tax filing due date and generally not exceed 25% of your unpaid taxes.
Additionally, failing to file your taxes may result in you having a hard time getting any type of loan for your business, face significant back payments, and have to deal with collections. That is why you need to make sure you know not only what taxes and forms you need to file but their due dates as well.
4. Will my small business qualify for income deductions?
Yes, your small business will most likely qualify for an income deduction. However, you will need to keep track of all your expenses to determine if you are eligible. Also, some businesses may have deductible expenses. As long as your business is registered, you can save money when tax season rolls in by reducing the amount of funds you owe the government.
5. If I do not owe any taxes, do I still need to file?
Every business needs to prepare and file a business tax return, regardless if it had profit or business earnings. In certain circumstances there may still be financial benefits to filing, even if a business comes up with a loss for the year. Speaking with a tax professional can help determine if you can receive any of these tax breaks or credits.
Get Help Filing Small Business Taxes for the First Time
Taxes can be complicated. As a small business owner, the task of filing these taxes can become extremely tedious and frustrating. Fortunately, you do not have to tackle these filings alone. Contact Silver Tax Group today to speak with one of our tax pros and get the help you need when filing business taxes for the first time.
