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Questions about Small Business Taxes
Does my small business need to file payroll taxes?
If you have employees, you’re going to need to account for payroll taxes. That means withholding a certain amount of your employee’s salary for things like the federal income tax, Social Security tax, Medicare tax, state income taxes, etc. Keep in mind that this applies to employees, not independent contractors. If you work solely with contractors and temps, you may be able to avoid payroll taxes. Of course, it’s a smart idea to talk with a tax attorney to be sure.
What kind of corporation is the best for small business taxes?
Each entity type brings a separate set of business tax advantages and disadvantages. That said, LLCs and S-Corps, which are generally considered the most popular business entities, have what’s called “pass-through” taxation. That means business income, deductions, and losses aren’t paid by the business itself but by the owners and/or members who run or have stock in the business. For example, if you have an LLC, your LLC taxes will be dealt with by the owners of the Limited Liability Company, not the LLC itself, as an entity. C-Corps, on the other hand, can be subject to “double taxation,” as they’re taxed at both a corporate and individual level.
If you own or operate a small business and haven't incorporated yet, it's a good time to consider doing that soon. Incorporation protects your personal assets and makes securing loans and hiring employees a whole lot easier.
Why does my small business need a business tax ID?
A business tax ID, also known as an EIN, is like a social security number for your business. It’s a specific number that applies to your business and your business alone and, for a vast majority of companies, a business tax ID is necessary for not only tax purposes but securing loans and permits on a local and state level.
How long should I keep business tax records?
There’s no hard and fast rule for how long your company should keep business tax records. In fact, depending on who you ask—be it an accountant, lawyer, or bank—you’ll likely get different responses. The IRS often suggests keeping business tax records for at least 7 years, but it’s generally a good idea to keep them indefinitely. They can be valuable in securing loans or complying with an audit. Plus, they’ll give you a more holistic, longer term view into your business’s financial picture. And that’s never a bad thing.
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