What are small business taxes?
Small 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 small businesses are required to collect and remit sales tax to their 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 small business, you may be required to report the amount that you paid each contractor.
How do you file taxes when you own a small business?
Small business taxes may be filed electronically or by mail. 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 other records, are used to prepare your tax return.
When do I pay small business taxes?
Your due date depends on whether you operate on a fiscal year or a calendar year.
- Sole proprietors and C corporations: Returns are due the 15th day of the 4th month after the end of your tax year.
- Partnerships and S corporations: Returns are due the 15th day of the 3rd month after the end of your tax year.
State income tax returns generally have the same due date as federal returns, but there are some exceptions.
Payroll and sales taxes are generally paid throughout the year in the month they are collected.
What types of tax deductions can I use as a small business owner?
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. For items used for both business and personal reasons, taxpayers may generally deduct the business portion of the expense.
Some common small business deductions include:
- Business start-up and organizational expenses.
- Business use of a vehicle.
- Home office expenses.
- Business-related travel and entertainment.
- Office or space rent.
- Utilities used by the business, including telephone and internet expenses.
- Office supplies.
- Interest on money borrowed for business purposes.
- Taxes attributable to the business.
- Business insurance premiums.
- Self-employed health insurance premiums.
- Employee pay and fringe benefits.
- Business retirement plan.
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, so always review IRS guidance before claiming them.
Do I need to pay quarterly estimated small business taxes?
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 generally 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.
How do I pay sales tax?
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. 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:
- Determine what taxes you may need to collect (usually your state and local tax agency has that information available).
- Apply for a sales tax permit if required.
- Discover which products or services that you offer require sales tax.
- Collect the tax when you make a sale.
- Keep meticulous tax records and make timely sales tax payments.
Collecting the proper amount of taxes is easier than ever. Point-of-sale systems and e-commerce platforms can often calculate and collect sales taxes for you.
Do I need to pay employment taxes?
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:
- Withheld federal income tax.
- Social Security.
- Medicare tax.
- Federal unemployment tax.
Self-employed persons are responsible for paying both the “employer” and “employee” portions of these taxes:
- Social Security.
- Medicare.
Do I need to file a tax return for my small business even if I don’t owe 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, you may be entitled to a tax refund—which you can only obtain by filing a return.
Note that your state’s income tax filing requirements may differ from IRS rules.
S corporations, C corporations, and partnerships should generally file a tax return each year, even if no tax is due.
How do I figure out which tax forms to fill out and file for my small business?
The income tax return that your small 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:
- Schedule C: Sole proprietorships or single-member LLCs that have not elected to file differently.
- Form 1065: Partnerships.
- Form 1120-S: S corporations.
- Form 1120: C corporations.
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 also be required to file sales tax forms.
Do I have to file my small business taxes with my personal taxes?
The only type of small 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 may also 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 Schedule K-1. The K-1 is part of your business income tax return.
How much does a small business have to make to file taxes?
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.
Please note: This page offers general legal information, not but not legal advice tailored for your specific legal situation. Rocket Lawyer Incorporated isn't a law firm or a substitute for one. For further information on this topic, you can Ask a Legal Pro.
