Small Business Taxes for Dummies: Understanding Your Obligations

As a small business owner, you're probably no stranger to the headaches of tax season. But don't worry, we've got you covered. You're required to file a tax return for your business by the 15th day of the 4th month after the end of your tax year.

One of the most important things to understand is that your business income is taxable, and you'll need to report it on your tax return. This includes income from sales, services, and even investments. You'll also need to keep accurate records of your business expenses, as these can be deducted from your taxable income.

Your business structure will also impact your tax obligations. Sole proprietors, for example, report their business income on their personal tax return, while corporations file a separate business tax return.

For more insights, see: How to Report Business Expenses on Taxes

As a small business owner, your income and expenses are the backbone of your financial health. You can deduct business expenses on your tax return, but you must have a record of them.

To qualify as a business expense, an expense must be ordinary and necessary for your business. This means it's common in your industry and helps you earn a profit.

Worth a look: How to Categorize Business Expenses for Taxes

Income is a crucial aspect of any business, and understanding how it's taxed can be a bit complex. Businesses are required to file a federal income tax return each year, except for partnerships, which only need to file an information return (Form 1065).

The type of tax return required depends on the business's legal structure. Sole proprietorships, for example, file a Form 1040 or 1040-SR, along with a Schedule C. This is also true for individual partners in a partnership and individual shareholders in S corporations, who must file a Form 1040 or 1040-SR, as well as a Schedule E.

C corporations and S corporations must file a Form 1120 or 1120-S, respectively. The 1120-S form is an information return, and the S corporation doesn't pay federal taxes, but passes that obligation on to its individual shareholders.

Limited liability companies (LLCs) have different requirements depending on how they were established. They may be set up as partnerships, corporations, or as an entity disregarded as separate from its owner. This means the owner is taxed as an individual, much like a sole proprietor.

Here's a quick rundown of the tax returns required for different business structures:

Expenses are a crucial aspect of managing your business's finances, and it's essential to understand what can be deducted from your profits to reduce your taxable income.

Business expenses can include a wide range of costs, such as wages and rent, which are generally deductible from your company's profits.

Utilities, like electricity and water, are also deductible business expenses, helping to reduce your taxable income.

Mileage and travel expenses can be deducted, including costs like gas, parking, and meals.

Office supplies, equipment, and advertising expenses are all deductible, allowing you to write them off on your taxes.

State and local taxes are generally deductible on businesses' federal taxes, providing an additional tax benefit.

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Filing taxes can be a daunting task, but it doesn't have to be. The key is to break it down into manageable steps. Filing small business taxes is a three-step process: collect the information you need, determine which forms apply to you, and file by the appropriate deadline.

You'll need to have your sales and collection information on hand, and navigate the website of your state's Department of Revenue, like the DoR in Washington, where monthly B&O tax returns are due on the 25th of the following month.

Small businesses generally file taxes using simpler forms, such as Schedule C for sole proprietorships or Form 1120-S for S-corporations. They often make quarterly estimated tax payments to avoid penalties.

You can find a list of small business forms and publications on the IRS website, which will help you determine which forms apply to you. It's essential to be registered with the Department of Revenue in your state to file your taxes.

Here are the five general types of business taxes you might need to pay, depending on your business structure:

If your business has employees, you might be required to withhold taxes from their paychecks, including income, Social Security and Medicare, unemployment, and self-employment taxes.

You can easily calculate your tax rate with a tax bracket calculator to make smart financial decisions. This helps you understand how your income will be taxed.

A W-4 withholding calculator is also available, which shows you how much to withhold from your paycheck to get a bigger refund. This can be a game-changer for your finances.

As a self-employed individual, you can use a self-employed tax calculator to estimate your self-employment tax and eliminate any surprises. This helps you plan ahead and avoid any unexpected tax bills.

Consider reading: Tax Affects Business Taxes

If you're self-employed, you know how important it is to stay on top of your deductions to minimize your tax liability. You can use a self-employed deductions calculator to find deductions as a 1099 contractor, freelancer, creator, or if you have a side gig.

The self-employed deductions calculator can help you identify deductions like the home office deduction, which allows you to deduct a percentage of your mortgage interest, insurance, utilities, and repairs, as well as take depreciation for that portion of your home. This can be a significant deduction, especially if you work from home.

The home office deduction is available to sole proprietors who use their home "exclusively on a regular basis" to run their business. You can deduct a percentage of your mortgage interest, insurance, utilities, and repairs based on the square footage of your office relative to the entire home. For example, if your home office is 10% of your total home, you can deduct 10% of your mortgage interest.

Here are some other deductions you may be eligible for:

Keep in mind that these deductions can vary depending on your specific situation, so it's always a good idea to consult with a tax professional to ensure you're taking advantage of all the deductions you're eligible for.

The W-4 Withholding Calculator is a valuable tool to help you determine how much to withhold from your paycheck to get a bigger refund.

You can find a W-4 Withholding Calculator on the IRS website, which will guide you through the process of calculating your withholding.

Knowing how much to withhold is crucial to avoid under or overpaying taxes.

The calculator takes into account your income, deductions, and credits to provide an accurate estimate.

Using the W-4 Withholding Calculator can help you plan ahead and make informed decisions about your taxes.

It's also a good idea to visit a Local Tax Pro Office for personalized advice and guidance.

State and local taxes can be a real headache for small business owners. They're imposed by states and local governments, and can include income taxes, property taxes, franchise taxes, and business license fees.

Some states tax businesses on their income, while others don't. Sole proprietors, for example, pay state and local income taxes as part of their personal income taxes.

Businesses that own buildings, land, or other real property may be taxed on it on the state and local levels. This is just like how individuals are taxed on their property.

A different take: How to File State Business Taxes

Roughly a dozen states impose a franchise tax on businesses of various kinds. This is not specific to franchises, but rather a type of tax levied on businesses that want to operate in that state.

You'll need to check with state and local governments to determine your business' tax obligations, as tax laws vary by location and business structure. This is especially important if your business has employees.

Here are some common types of state and local tax requirements for small business:

To find out more about the business tax requirements in your state, you can check with your state tax authority or find information online.

Expand your knowledge: State Business Taxes

Planning and Compliance is key to making small business taxes less onerous. Keep careful records of your income and expenses, ideally as they occur, to avoid scrambling to collect paperwork later on.

Accounting and tax software programs can help with record keeping, making it easier to stay organized. You can also pay estimated taxes each quarter to avoid penalties and a whopping tax bill at the end of the year.

Here's an interesting read: How to Avoid Taxes When Selling a Business

The IRS offers various deadlines for filing tax forms, which can be found in Publication 509: Tax Calendars. Make sure to note these deadlines to avoid IRS penalties and interest on unpaid taxes. Taxpayers have the right to dispute any penalties imposed by the IRS.

Here are the key deadlines to keep in mind:

The IRS doesn't have a clear definition of what a small business is, but it does use the term to describe taxpayers who file specific forms, such as Form 1040 or 1040-SR, Schedules C, E, F, or Form 2106.

Small businesses with assets under $10 million are also considered part of this group by the IRS.

It's worth noting that this definition is not set in stone, and the IRS may use other criteria to determine what constitutes a small business in certain situations.

The IRS's definition of a small business is somewhat vague, but it's clear that it's focused on taxpayers who are operating on a relatively small scale.

For another approach, see: Can I Use My Personal Bank Account for Business

Depreciation is a crucial concept in business accounting, especially when it comes to tax deductions.

Rather than deducting the cost of certain property in the year of purchase, businesses must depreciate it over a period of time. This results in tax deductions that can continue for years into the future.

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Record keeping is key to making tax time less stressful. Small businesses should keep careful records of their income and expenses as they occur to avoid scrambling to collect paperwork later.

Accounting and tax software programs can help with record keeping. These programs can also make it easier to stay on top of estimated tax payments.

Estimated tax payments can be made by mail, phone, or mobile device as well as online through the IRS's Electronic Federal Tax Payment System (EFTPS). This can help avoid penalties and a huge tax bill at the end of the year.

Businesses have to file their taxes on time to avoid IRS penalties. These penalties can be charged until the bill is paid in full, and interest may also be added.

The IRS can choose to audit individual or business tax returns for various reasons. Most audited returns are no more than two years old, and the IRS rarely audits returns that go back more than six years.

For your interest: Canada Small Business Tax Rate

Getting expert advice can make a huge difference in planning and compliance for small businesses. You can get matched with an expert who prepares and files your taxes for you, guaranteed to find every deduction you deserve and maximize your tax savings.

To get the most out of expert advice, consider using TurboTax Full Service Business or TurboTax Live Assisted Business, which are perfect for partnerships, S-corps, LLCs, and sole proprietorships. These services offer unlimited expert advice as you do your taxes and a final review before you file.

The IRS recommends keeping good records of income and expenses, ideally as they occur, to avoid scrambling to collect paperwork later on. Accounting and tax software programs for small businesses can help make this process smoother.

Here are some key tax deadlines to keep in mind:

Keep in mind that the IRS can charge interest on penalties until the bill is paid in full, and taxpayers have the right to dispute any penalties imposed.

Filling out the right forms is a crucial step in small business taxes. Schedule C is a simple, two-page form for reporting business earnings and expenses.

You can find a copy of Schedule C on the IRS website or use TurboTax to generate it after inputting your financial information. This form is especially useful since it allows you to easily calculate your net profit or loss by subtracting expenses from business earnings.

TurboTax offers various software products to help with small business taxes, including self-employed and investor taxes, as well as options for military tax filing and working with a tax expert.

Selecting the right form can be a daunting task, especially for small business owners. You always need to report your business earnings to the IRS and pay tax on them, but choosing the right form depends on how you operate your business.

If you run a sole proprietorship, you can report all of your business income and expenses on a Schedule C attachment to your personal income tax return. This is also the case for LLCs with a single owner, who are considered sole proprietors by the IRS.

A fresh viewpoint: How to Do My Own Business Taxes

If your business is organized as a corporation or you elect to treat your LLC as one, you need to prepare a separate corporate tax return using Form 1120 for C-Corporations or Form 1120S for S-Corporations. Multi-member LLCs are considered partnerships and typically file Form 1065.

TurboTax Home & Business and TurboTax Business can help you fill in the right forms for your business, even if you use a Schedule C with Form 1040 or file Form 1120 for a corporation.

Here are the forms you might need to file, depending on your business structure:

The deadline for filing these forms varies depending on your business structure. For example, if you use a Schedule C, it becomes part of your Form 1040 and is subject to the same April 15 deadline.

Additional reading: Deadline to File Taxes for Business

TurboTax offers a range of online software products to suit different tax needs.

You can file your taxes for free with the Free Edition, which is a great option for simple returns.

TurboTax also offers specialized products for self-employed individuals and investors, known as TurboTax self-employed & investor taxes.

Military personnel can get a discount on free military tax filing.

TurboTax Live is a range of products that provide access to tax experts, including TurboTax Live Premium and TurboTax Live Full Service Pricing.

If you're a business owner, you can choose from TurboTax Live Full Service Business Taxes or TurboTax Live Assisted Business Taxes.

For small business taxes, TurboTax offers a dedicated product called TurboTax Small Business Taxes.

If you prefer to work with a local tax professional, you can find one through TurboTax Verified Tax Pros or TurboTax Verified Pros - Find Your Local Tax Professional.

TurboTax also offers a pro matching service through TurboTax Verified Pros - Pro Matching.

By switching to a TurboTax Full Service expert, you can get a price match guarantee from last year's tax pro's price, as long as you lock in the offer by March 18 and file by March 25.

As a small business owner, it's essential to understand the difference between self-employment and employment taxes. Sole proprietors, partnerships, and C or S corporations are all subject to employment taxes if they have employees.

Employment taxes are a significant expense for businesses, and they include Social Security and Medicare taxes, which both employees and employers pay a portion of. Unemployment taxes, also known as FUTA, are filed separately with Form 940.

If you're starting a small business, you'll likely need an employer identification number, also known as a federal tax identification number.

These numbers are available online and free of charge from the Internal Revenue Service.

Some states issue their own ID numbers for businesses, so it's worth checking with your state government to see if that's the case for you.

Sole proprietors with no employees may not need an EIN, but they can use their Social Security number as an identifier when filing their taxes.

They might still want to get an EIN, though, in case they hire employees in the future.

Getting an EIN is a pretty straightforward process, and it's free, which is a nice bonus!

Small businesses often choose entity structures like sole proprietorships, partnerships, LLCs, or S-corporations.

These structures offer benefits like pass-through taxation, which can help reduce tax liability.

Sole proprietorships, for example, are often chosen by small businesses because they are relatively simple to set up.

Partnerships, on the other hand, involve shared ownership and decision-making among multiple individuals.

LLCs, or Limited Liability Companies, offer personal liability protection, which can be a major advantage for business owners.

Large businesses frequently operate as C-corporations, which may face double taxation at both the corporate and shareholder levels.

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As a self-employed individual, you're responsible for paying your own taxes, and that can be a daunting task.

Self-employment tax is a must for sole proprietors and individual partners in a partnership, who must attach Schedule SE to their 1040 or 1040-SR form.

The self-employment tax rate is a whopping 15.3%, which includes 12.4% for Social Security and 2.9% for Medicare.

If you're a 1099 contractor, freelancer, creator, or have a side gig, you can use a self-employed tax deductions calculator to find deductions and reduce your tax liability.

You can even estimate your self-employment tax and eliminate any surprises with a self-employed tax calculator, giving you peace of mind and a clearer picture of your finances.

Tax Refund Advance and Products for previous tax years can also be helpful resources for self-employed individuals.

Employment can be a complex and time-consuming aspect of running a business, especially when it comes to taxes. Sole proprietors, partnerships, and C or S corporations are all subject to employment taxes if they have employees.

Employers must pay a portion of Social Security and Medicare taxes, and also withhold income taxes from their employees' pay. Unemployment taxes, also known as FUTA, are another type of employment tax that employers must pay.

FUTA taxes are filed using a different form than the other employment taxes, which are typically filed using Form 941, 943, or 944.

Broaden your view: What If You Cannot Pay Business Taxes

As a small business owner, you're likely eager to turn a profit and grow your business.

The IRS considers a business to be operational when it starts generating revenue, which is considered taxable income.

If your business is a sole proprietorship, you'll report your business income on your personal tax return, using Schedule C.

To minimize taxes, it's essential to keep accurate records of your business income and expenses.

Sales taxes are imposed by most U.S. states, as well as many counties and cities. The United States does not have a national sales tax.

Small businesses may be required to collect sales taxes, and then pass them along to the relevant taxing authority if they sell taxable goods or services. This means they'll need to register with their state taxing authority first.

The amount of tax and what constitutes a taxable good or service will vary from one place to another.

Take a look at this: States with Highest Business Taxes

When it comes to the financial side of things, understanding company revenue is crucial for making informed decisions. All businesses except for partnerships must generally file an annual income tax return, even if they show a loss for the year and face no tax liability.

To file a tax return, sole proprietors must have a net income from their business of at least $400. This is a significant threshold, and many small businesses struggle to meet it.

Businesses with income over a certain amount from other sources may also be required to file a tax return, regardless of their net income from the business. This can include income from investments, real estate, or other sources.

The tax return requirement is a key aspect of being a business owner, and it's essential to understand the rules and regulations surrounding company revenue.

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