A Beginner’s Guide to Small Business Taxes
For everyone — even businesses — taxes are a part of life. No matter the type of business you run, you need to know how to file taxes as a small business owner.
If you’re trying to keep up with small business bookkeeping and tax issues, here’s a guide that can help you learn the basics to stay on top of the situation.
Small business bookkeeping and tax: What are you responsible for?
Depending on your situation, you might owe different types of taxes. This is why understanding small business bookkeeping and tax issues is so important. Keep thorough records of your expenses and revenues so that you’re ready when tax time rolls around.
Some taxes that you might be responsible for include:
- Income tax: This is a tax on the income you receive.
- Payroll taxes: If you have salaried employees, you’re responsible for paying payroll taxes. The IRS requires you to keep track of what you owe and pay quarterly. For a small business, bookkeeping and tax help can be a boost, freeing you up to focus on the business. Consider getting help from an accountant or payroll service to stay on top of payroll taxes.
- Unemployment taxes: You must pay federal and state unemployment taxes when you hire others. This is often considered another payroll tax.
- Sales taxes: If you sell goods and services, you’ll be responsible for paying a sales tax. Find out what the state tax and process is so you can price your products accordingly. If you sell online, many platforms calculate and collect the sales tax on your behalf.
- Property taxes: If you buy an office or a store location, you might be required to pay taxes on the property, depending on the state, county, and city requirements.
Should You File Personal and Business Taxes Separately or Together?
If you have a C-Corporation, your business pays taxes separately from you as an individual. For those with an S-Corporation or Limited liability companies (LLC), you submit a tax return for your business, but the business doesn’t pay taxes on it. Instead, the income “passes through” to you, and you pay taxes on your form. A Schedule C is used for sole proprietorships to report business income and expenses, and it’s part of your regular tax filing.
How do tax deductions work for small businesses?
The good news is that you can deduct some of your expenses on your taxes, reducing your business income and your tax liability. So, how do tax deductions work for small businesses? Let’s take a look.
What is a small business tax deduction?
Once you know how tax deductions work for small businesses, you can use them to reduce your taxable income. A small business tax deduction is anything that you can use to offset some of your revenue. For example, if you made $1,000 one week, but you had to pay $500 to travel to a business meeting, you can deduct that $500, and your total income for that week would be $500.
Some common small business tax deductions include:
- Business meals
- Travel expenses related to the business
- Mileage on your car, as long as it’s related to the business
- Home office space
- Supplies for your business
- Services, like phone and internet, for your business
- Payments to contractors and other business service providers
- Salaries and benefits paid to employees
- Advertising and marketing costs
- Charitable contributions your business makes
When understanding how tax deductions work for small businesses, you should know that you can only deduct what’s used for the business. Keep good records and pay expenses from a dedicated business bank account so that you don’t end up with problems when filing taxes later.
How to file taxes for a small business owner
Just as you would file taxes for your personal income, you need to learn how to file taxes as a small business owner. If you’re a sole proprietor, you can do it all once. For other business organizations, though, it’s important to note that your business tax return is due a month before your personal tax returns. This is so that any “pass-through” income can be reported on your personal return.
It’s possible to find all the necessary forms and fill them out on your own, but many small business owners like the idea of getting some help. Most tax preparation software can provide you with guidance as you fill out the forms. However, it’s important to note that you may pay more for a version with business tax filing help.
Finally, you can hire someone to handle your taxes for you. Accountants and tax lawyers specialize in helping small businesses file their taxes, and they can then use the information from your business tax form to complete your personal taxes.
If you feel overwhelmed by filing your taxes as a small business owner, consider hiring someone else to handle the heavy lifting for you. They can help you understand what you need to use, as well as help you develop a system so it becomes more streamlined each year. Carefully consider your needs as you figure out what would be most useful for you.
Learning how to file taxes as a small business owner can feel like a daunting task. However, once you learn how tax deductions work for small businesses, as well as get small business bookkeeping and tax help, it becomes a little easier.
The keys are keeping good records and maintaining separate business and personal bank accounts and finances. If you start there and get help for other aspects, you can create a system that allows you to move forward with relative ease.
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Information contained in this blog is for educational and informational purposes only. Nothing contained in this blog should be construed as legal or tax advice. An attorney or tax advisor should be consulted for advice on specific issues.