If you own a small business, there is a good chance you are confused about taxes. This is a common issue for small business owners who may not be very good at the accounting issues surrounding their companies as well as the federal and state tax laws that affect them as business owners.
Fortunately, there is a relatively simple way to figure out what you need to do and which taxes you should pay when. Besides the information readily available on the Internal Revenue Service’s website at http://www.irs.gov/Businesses, you can quickly find out the basics from a free tutorial like the one provided by Bankrate on its website at http://www.bankrate.com/brm/news/biz/adviser/20020122a.asp.
Basics of Business Tax
If you have just opened a business, there are several things you should know. First, whether you are a corporation or not will have a significant impact on how you pay your taxes. If you have incorporated your business, you will need to file both a corporate and a personal tax return each year. The way income is treated under each return is based on the type of corporation you have, how often you draw from your company, whether you have employees and whether your corporation is a non-profit or for-profit business. It may be a good idea to have an accountant look over your taxes, at least the first year.
However, it is also wise to familiarize yourself with the basic publications and information you will need to file your returns. These include:
- Publication 583, which lists all the records you should maintain.
- If you are a sole proprietor, meaning that you have no partners or shareholders, read Publication 334. This is a good guide to filing your income taxes, both quarterly and annually.
- Form 1120 and Form 1120S are the standard forms for C and S corporations respectively. Be sure you know which form your business is incorporated under.
- Form 940, 940-EZ or 941 are used to assess your federal unemployment tax or FUTA.
- Form 945 reports on non-payroll amounts such as IRA contributions.
- You are also required to pay self-employment taxes associated with Social Security and Medicare. It is usually best to do this with quarterly estimated tax payments. Publication 509 gives the tax calendar for each year.
While you are looking over the federal forms, do not forget state and local taxes. You will need to examine your state’s tax codes to see if you must pay taxes, and there may also be a local income tax assessment.
You can always ask your state or local tax agencies or the IRS for help. Surprisingly, the help centers at most tax agencies are very good and will usually work with you to ensure that you are paying your taxes correctly.
Ultimately, it is up to you to be sure you have a handle on your business taxes. However, it is never wrong to seek help from an expert such as an accountant if you do not understand or cannot handle the tax issues surrounding your business.