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Small Business Taxes

your guide to

SMALL BUSINESS TAXES

Running a small business is one of the most involved careers one can have. Most of the time, you are focused on the day-to-day concerns of running your business, but the financial aspect cannot be ignored. If you need help with business taxes, check out the following information, and be sure to contact a tax professional at Liberty Tax to discuss your needs in detail. 

Business classifications 

First, your business structure for your small business will significantly affect how you are taxed. 

Sole Proprietorship 

In a sole proprietorship, your personal and business liabilities and assets are not separated for tax-filing purposes. Sole proprietorships are the default business classification. 

Partnership 

A partnership is a simplified business structure for businesses run by two or more people. 

Limited Liability Company (LLC) 

A limited liability company (LLC) is a middle ground between a partnership and a corporation. Members of an LLC have to pay self-employment taxes for Medicare and Social Security. 

C Corporation 

If your business is structured as a corporation (C Corp), its activities are separate from shareholders. This protects from liability but requires corporations to pay income tax on their profits, usually at a higher rate. A corporate structure is recommended for larger-scale, higher-risk businesses. 

S Corporation 

In an S corporation (S Corp), some profits and losses can be listed on your and other business owners’ personal income taxes. This allows for lower taxation. However, not all states allow this, and many other restrictions apply to S Corps, such as having a maximum of 100 shareholders. 

International Business 

For tax purposes, an international business is a business that is either foreign and conducts business activities within the U.S. or vice-versa. International businesses are required to operate within the Foreign Account Tax Compliance Act (FATCA). 

Small business taxes 

You are responsible for paying both federal and state taxes for your small business’s operations. Small business tax rates can vary from state to state, so it is essential to check with your state’s Department of Revenue. Typical small business taxes include: 

Income Tax 

Like personal income taxes, some small businesses pay taxes on the net income, with variations depending on business structure. 

Employment Tax 

If you have employees, you are responsible for paying payroll taxes, which include: 

    • Federal Income Tax Withheld from Employees 
    • Federal & State Unemployment Taxes (FUTA & SUTA)
    • Employer and Employee Social Security and Medicare Taxes 

Unlike most taxes, the IRS requires small business owners to make deposited payments for these taxes at least once a month.  

Self-Employment Taxes 

If you’re self-employed or a sole proprietor, you will need self-employment taxes to contribute to your social security and Medicare benefits. 

Excise Tax 

Your business may be required to pay excise taxes on specific activities, sales, or payments. For example, if your company uses truck tractors on public highways or sells lottery tickets, you may be required to pay excise taxes. 

Sales Tax 

Your business may be obligated to collect and pay sales taxes for the goods or services you provide. In addition to federal sales taxes, you may also be required to pay state sales taxes, which can differ depending on the county or city in which you operate.  

Property Tax 

You'll have to pay property taxes if your business owns real property, fixed land, and buildings. Taxes are paid on the assessed value, not the fair market value. The assessed value is determined by the local taxing authority, which will provide you with documentation and a tax bill based on their calculation. The amount you pay in property taxes largely depends on where your real estate is located. 

Filing your small business taxes 

Depending on the type of business you operate, you may have different tax forms and filing deadlines. 

Which forms do you file? 

For your federal income taxes, you should file based on your business structure: 

    • Sole Proprietorship: Form 1040, report business income and losses on Schedule C
    • Partnerships: Form 1065
    • LLC: Form 1065, unless electing to be treated as a corporation, then Form 8832 
    • Corporations: Form 1120 
    • S Corporations: Form 1120S 

Form 940 should be used for federal unemployment, and Form 941 for quarterly employment taxes (Social Security and Medicare). 

Small business tax filing deadlines 

Corporations, sole proprietorships, and single-member LLCs adhere to the April 15th deadline. If you operate a partnership or an S corporation, you will need to file your taxes by March 15th instead. Since this is an entire month earlier than you’re used to, it can be easy to forget. 

Paying your small business taxes 

The first time you pay taxes for your small business, you will need to establish the tax year that you will operate under, even if you were not in operation for the entire year. Often, business owners choose to follow the calendar year for simplicity, but specific accounting needs might interfere. If necessary, you can change your tax year by filing Form 1128. 

As a small business owner, you’ll need to make many tax payments throughout the month and year. Business owners are required to make estimated tax payments four times per year. You’ll also need to make frequent deposits for employment taxes. 

Estimated tax payments 

You will only need to make quarterly payments if your business owes $1,000 or more in income taxes. However, if your business is classified as a C or S Corp, you’ll need to make estimated payments if you’re expected to owe $500 or more in taxes. 

Quarterly estimated taxes are due: 

    • April 15th
    • June 15th 
    • September 15th 
    • January 15th (of the following tax year) 

To calculate your estimated tax payment, use Form 1040-ES.

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