How to pay business taxes
Whether you are a team of one or of many, learn how to file when you own a business.
Whether you are a team of one or of many, learn how to file when you own a business.
Business taxes include a variety of taxes. The IRS requires all businesses to file a federal tax return, and most states require a state tax return. The type of tax forms and your rate depend on the type of business you formed, how much you made, your deductions, credits, and many other factors. Many businesses are required to collect and remit sales tax to your state or local taxing authority.If you have employees, there are taxes related to your payroll, including: Social Security tax, Medicare tax, unemployment tax, and state and local payroll taxes. If you hire independent contractors for your business, you may be required to report the amount that you paid each contractor.
Business taxes may be filed electronically, or mailed, however, there are different types of filings. Your filing depends on the type of entity you formed, and other factors. If you have staff, for example, there are payroll taxes and W-2 forms to send.Accurate bookkeeping can simplify the process. Your financial documents, such as your Profit and Loss Statement and more detailed statements, are used to prepare your tax return.If you are unsure of what type of tax return to file, a tax pro can help. They can also prepare a tax calendar for your business, so you know the due date for each tax filing and payment.
Your due date depends on whether you operate on a fiscal year or a calendar year. For Schedule C filers and C-corps, the due date is the 15th day of the 4th month of the fiscal year, or April 15th for businesses on the calendar year. For Partnerships and S-corps, the income tax due date is the 15th day of the 3rd month of the fiscal year, or March 15th for businesses on the calendar year. State income tax returns generally have the same due date as federal returns, but there are some exceptions.Payroll and sales tax, generally, are paid throughout the year in the month they are collected. Collecting and remitting these taxes can be complicated. Check with your tax pro to verify the specific deadlines for your business.
If you want to save on your business taxes, consider hiring a tax pro. How you file can have a big impact on how much money you pay. Some business owners save money by paying pass through taxes, while others save money by paying business taxes at the corporate level separately from the owners' individual income.A tax pro can help lower your taxes by providing expert advice to help you make the right choices. They can also help find and claim all the deductions and credits that apply, both for federal and state taxes. Save HALF OFF professional tax filing fees with a Rocket Legal+ membership and get year-round protection for your business and personal needs.
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Got questions about business taxes? We’ve got answers.
Small business owners may deduct expenses that are both ordinary and necessary. Ordinary expenses are those which are common and accepted for the type of business being conducted.
Only business expenses qualify for tax deductions. In other words, an entrepreneur may not deduct their personal expenses. For items used for both business and personal reasons, taxpayers may generally deduct the business portion of the expense.
Some common business deductions you may be able to claim as a small business owner include:
This list represents just some of the most common deductible expenses. Depending on the type of business you own, you may be eligible to claim other tax deductions. The rules surrounding tax deductions can be complex. When in doubt, seek guidance from a qualified tax pro.
Yes, typically, self-employed individuals and small business owners pay quarterly estimated taxes. If you don't pay or if you underpay, you may end up facing penalties and a larger tax bill when you file your annual tax return.
If you expect to owe over $1,000 in taxes by the end of the year, estimated quarterly tax payments are required. Corporations are expected to make quarterly tax payments if they expect to owe $500 or more in taxes at year end. Additionally, if you paid any taxes in the prior year, you are expected to pay quarterly taxes.
Knowing what taxes you need to pay and when can be confusing. To be on the safe side, paying quarterly taxes is recommended, unless it is your first year in business and you do not expect to make a profit.
If your state requires sales tax and you sell taxable items or services, you need to collect and pay sales tax. The frequency of sales tax payments varies by state, and sometimes even county. Talking with a tax pro can help you determine when your sales tax payments are due. If you sell to individuals or businesses located in other states, you may be required to collect and remit sales tax for those states as well.
The task is easier if you use sales technologies that will calculate and track sales taxes for you.
Collecting sales tax requires you to:
Collecting the proper amount of taxes is easier than it has ever been. Often point-of-sale systems can be used to collect and track your sales records for you. If you sell online, e-commerce services can calculate and collect sales taxes for you. If you do not have these technologies set up, or even if you do, a tax pro can help you understand your obligations so you can be confident you are doing it right.
If your company has employees, you need to withhold taxes from each paycheck as well as pay your own share of employment taxes. If you are self-employed, you need to pay both the employee and employer shares of employment taxes yourself in your quarterly estimated taxes.
For employers, tax payments are made monthly or semi-weekly. Employers remit these taxes to the IRS for each employee:
Self-employed persons are responsible for paying both the “employer” and “employee” portion of these taxes:
You may still need to file a tax return even if you don’t believe you owe any taxes to the IRS. Self-employed individuals must file tax returns if their earnings from self-employment are $400 or more for the year. If you paid more in estimated taxes throughout the year than you actually owe because your earnings were lower than expected, you may be entitled to a tax refund – which you can only obtain by filing a return with the IRS.
Note that your state’s income tax filing requirements may differ from IRS rules. Talk to a tax pro if you need help determining your filing obligations.
S corporations, C corporations and partnerships should generally file a tax return each year, even if no tax is due.
The income tax return that your business is required to file depends on the type of business that you operate. Below are the various types of forms required for business income tax returns:
If your business has employees, you are required to file a Form W-2 for each employee and a Form W-3, which summarizes your Form W-2 data. Form 940 is required to report your federal unemployment tax liability. Form 941 or Form 944 is required to report federal income and FICA taxes. Businesses that hire independent contractors may be required to file Form 1099-NEC with the IRS. Depending on your business and the state that you operate in, you may be required to file sales tax forms.
There are a number of other less common tax documents that your business may be required to file. Connect with a tax professional to verify which tax forms are required or if you need help completing your business tax filings.
The only type of business income tax return that is filed with a personal tax return is Schedule C. If you operate a sole proprietorship, then you will file a Schedule C as part of your personal tax return. Single member LLCs also may file a Schedule C as part of their personal tax return.
If you own an S corporation, C corporation or partnership, then your business files an income tax return that is separate from your personal taxes. For S corporations and partnerships, the net loss or profit from the business will pass-through to your personal income tax return via a K-1. The K-1 is part of your business income tax return. If you are unsure how your business tax return impacts your personal tax return, talk to a tax pro to learn more.
S corporations, C corporations and partnerships are generally required to file an income tax return each year, even when these businesses made no income or lacked expenses.
If you operate a sole proprietorship, you must file a Schedule C tax return if your earnings from self-employment are $400 or more for the year.
In addition to income tax filing obligations, your business may need to file tax returns for payroll taxes, sales tax, franchise tax or other less common taxes. A tax pro can assist you with determining all of the business tax filing requirements for your business.