Small Business Tax Guide

Gross Domestic Product and accounted for 63 percent of net new job creation between and [sources: Small businesses must pay taxes just like individual workers or large corporations. The simple story is that small businesses pay taxes on their net profit; that's the sum of all business earnings minus normal businesses expenses.

Depending on the size and nature of the small business, figuring taxes can be straightforward or highly complex. This article will give you a strong foundation for understanding the types of taxes that small businesses pay and ways to lower the tax burden. First, what is a small business?

Small Business Administration categorizes all business with fewer than employees as small businesses. For tax purposes, though, we're going to narrow that definition to exclude all corporations. Corporations follow a separate set of tax rules from unincorporated businesses.

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A more useful definition of a small business, for tax purposes, is any business venture that requires the owner to file a Schedule C — "Profit or Loss from Business" — with the IRS. The following types of small businesses are required to file a Schedule C [source: A small business doesn't have to be a taxpayer's only source of income. You can have a salaried position as a middle manager, but also sell handmade sweaters online. Note that there are limits on plan contributions depending on the type of plan you have. Business interest and bank fees.

Child and dependent care expenses. Energy efficiency property expenses. Foreign earned income and taxes paid. Legal and professional fees. See the full list. If you have enough cash on hand to meet your December expenses, you could cut your tax bill by waiting until January to collect some receivables.

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This could include heavy equipment, office furniture, computers, and business software. Buying business services in bulk—including online bookkeeping services like Bench—also qualifies. If you manage to collect it next year, simply count the money as revenue on your next tax return.

Learn more about reducing your tax bill. Sales tax is governed at the state level, and that means each state gets to set their own sales tax laws, rules, and guidelines. While a majority of states want sellers to file sales tax returns on the 20th of the month after the taxable period, due dates in many states can vary. You might file monthly, quarterly, or annually or semi-annually. This frequency is subject to change if your sales volume within a state has increased or decreased over the previous year.

Small Business and Self-Employed Tax Center

The more revenue your business makes in a state, the more often that state wants you to pay sales tax. Many states will allow you to keep a small percentage of the sales tax you collect as a reward for filing and pay your sales tax on time. Read on for an in-depth sales tax refresher. Paying estimated taxes four times a year may seem like a chore. But if you project these payments correctly, it can actually soften your burden when tax season rolls around. Quarterly taxes are due in April, June, September, and January:. To calculate your estimated quarterly tax payments, first estimate your expected adjusted gross income , taxable income, deductions, and credits for the year.

Use last year as a guide. Then apply a few simple calculations. Form ES for individuals or Form W for corporations, will guide you through these calculations line by line. Learn more about quarterly taxes. Below is a list of tax filing dates and important deadlines for the tax year. Take a few minutes to save each relevant filing date to your calendar, and stay ahead of the IRS.

Say a final goodbye to The fourth and final estimated quarterly tax payment for the previous tax year is due today. If you work with independent contractors, the new January 31 filing deadline also applies to certain types of s.

11 Deductions to Avoid All Together

The IRS explains , but in short: Copy A must be filed with the IRS by this date. Copy B must be furnished to the contractor no later than February Today is the deadline to file your S corporation tax return Form S or partnership return Form Note that S corporations and partnerships do not pay taxes on their income. That tax is paid on the individual incomes of the shareholders or partners, respectively. If your business pays taxes on a quarterly basis, the first estimated quarterly tax payment is due today.

For an automatic six-month extension, file Form and deposit your estimated taxes owed. Today is the deadline to file Corporation tax returns Form For an automatic five-month extension , file Form and deposit, by today, your estimated taxes owed. Your second estimated quarterly tax payment is due today. Your third estimated quarterly tax payment is due today.

Recommended Reading for Small Businesses | Internal Revenue Service

End of year tax moves can help grow your business and reduce your taxable income for the year. If you are self-employed, today is the deadline to set up a solo k. Learn more about tax deadlines. If your business is a partnership , multi-member LLC , or S corporation , you will also need to file Form to extend the filing deadline for your personal income tax return. March 15 To qualify for an automatic six-month extension, use Form April 15 To qualify for an automatic six-month extension, use Form If you are a U.

You can apply for the extension using Form The quickest way to submit your tax extension application is online but you can also apply by mail. It gives you extra time to file your paperwork, but not more time to pay the taxes you owe for the year. Keep reading about IRS tax extensions. But they feel a lot less scary when you fully understand the possible penalties.

You will have to pay an additional 0. After that, you have 21 calendar days to pay the additional amount, otherwise 0. If you substantially underestimate how much tax you owe, or the IRS finds you were negligent in an aspect of your taxes ie. The two common scenarios for this are not reporting employee wages through your payroll provider, and not reporting employee tip income. Read more about IRS penalties. If you own a small business, and you do some consulting on the side, make sure you accurately report all the money you bring in.

The IRS uses the information on Forms W-2 , , and to compare the income and deductions you report on your return with information reported by others, such as employers, banks, and businesses. Any discrepancies are an obvious red flag for the IRS. Making a careless error on your tax return is an easy way to get a call from the IRS.

In the event of any omission, miscalculation, or error on your return, the IRS is obligated to further investigate your case.

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Hire a bookkeeper to make sure your books are penny perfect. In the event that you do get audited, keeping your small business records in order will make it quicker and easier to substantiate anything that the IRS decides to question. The IRS is strict about business owners separating personal and business finances. Unless your business operates as a sole proprietorship, you are legally required to manage your business and personal expenses in separate accounts.

If your business and personal expenses are currently commingled in the same account, open a small business bank account and separate your expenses as soon as you can. As a business owner, you have the choice of two different accounting methods: If you bounce back and forth between the two methods, the IRS might interpret this as potentially deceitful, and it will likely incite further investigation.