Running your own business comes with many responsibilities, including having to file taxes. As taxes rise and fall, business income and expenses can be impacted, which is why it’s important for every small business owner to be aware of the taxes that apply to them. Here are the top 5 taxes that every small business owner needs to know about:
Most businesses have to file an income tax return with the IRS every year. The only kind of business that doesn’t have to pay income taxes are partnerships, which instead have to file an annual information return.
The form needed to file an income tax return differs based on the type of business you run:
- Sole-proprietorships – Form 1040
- S Corps – Form 1120S
- C Corps – Form 1120
Each state has its own tax laws regarding business income tax, so make sure to check the income requirements specific to the state you’re located in.
If the amount of income tax withheld from your salary is not enough, or if you receive income such as interest, dividends, alimony, self-employment income, capital gains, prizes and awards, you may have to make estimated tax payments. As a business owner, there’s a good chance that you will have to make estimated tax payments. Underpayment of estimated taxes can result in penalty fees.
As a business owner, you have to pay Social Security and Medicare taxes, similar to the Social Security/Medicare taxes that most wage earners have withheld from their pay. While wage earners typically have these taxes calculated by their employers, business owners, who employ themselves, must figure self-employment tax themselves. If your net earnings from self-employment exceed $400, you must pay self-employment tax.
If you have employees, there are federal tax requirements you must abide by and file for them, including:
- Social Security and Medicare taxes
- Federal income tax withholding
- Federal unemployment (FUTA) tax
All businesses that have employees also have to pay state workers’ compensation insurance and unemployment insurance taxes.
If you run a business that manufactures or sells certain products, or uses certain types of equipment or facilities, you may have to pay an excise tax each year. Examples of excise taxes include:
- Environmental taxes
- Fuel taxes
- Heavy highway vehicle use taxes
- Sports wagering taxes
- Manufacturers taxes
To make sure that you are in compliance with federal tax laws and regulations, you can review the IRS Excise Tax requirements and confirm whether or not your business needs to be filing these types of taxes.
When it comes to taxes, it’s always best to consult with a professional or tax advisor. Owning and operating a successful small business is no easy task, and taking on tax preparation makes your job that much harder, which is why we provide Innovator Business Checking account holders with tools and resources to help save time, money and hassles- no matter who prepares them.
By Michaela Lenahan in Small Business