Common Taxes for Small Business Owners<\/h2>\n
Income tax <\/em><\/strong>\u2013 You’ll owe income tax on your earnings from running the business, both on your salary and on any profits. Depending on the structure, your business itself may need to file a separate tax return and pay its own income taxes before the profits can go to you personally.<\/p>\n Self-employment tax <\/em><\/strong>\u2013 Self-employment taxes pay for Social Security and Medicare. Typically, employers will cover half of this tax, and employees will cover the other half. But when you’re self-employed, you need to cover the entire share yourself.<\/p>\n Employment taxes <\/em><\/strong>\u2013 If you have any employees, you’ll be paying several taxes on their behalf. You’ll pay part of their Social Security and Medicare taxes, as well as federal unemployment tax. You’re also supposed to withhold part of their paychecks to cover their estimated taxes, which they calculated using Form W-4 when you first hired them.<\/p>\n The IRS<\/a> states that your business structure will affect how to pay small business taxes and the forms you’ll need to submit:<\/p>\n Sole proprietorship <\/em><\/strong>\u2013 In a sole proprietorship, you’re the only owner of the business. It’s the simplest structure. You don’t have to file a separate tax return for your business. You handle everything through your individual tax return, and all the income passes directly to you. When you prepare your individual tax return, you’ll include a Schedule C form, which calculates your net profit or loss from the sole proprietorship.<\/p>\n Partnership <\/em><\/strong>\u2013 A partnership is similar to a sole proprietorship except it has more than one owner. The business income still passes through to the owners. You divide it up according to ownership percentages set during your original partnership agreement. While the partnership itself doesn’t pay business tax, you’ll have to file an extra informational return, Form 1065, which lists the total income, deductions, net profit and how it was divided between the partners.<\/p>\n Corporation <\/em><\/strong>\u2013 Corporations have the most complicated system for how to pay small business taxes because the income is taxed twice. First, every year your business will need to fill out its own tax return, and will owe corporate income tax on any profits.<\/p>\n After that, you and the other owners decide whether you want to pay out any of the after-tax profits to yourselves, as a dividend. You’ll have to report this dividend income on your personal tax return as well.<\/p>\n LLC <\/strong>\u2013<\/em> The way to pay business tax for an LLC depends on how you structured it. The typical LLC uses the pass-through setup, so you’re only owing taxes at the personal level. If you’re the only owner, the taxes work as a sole proprietorship, and if there are multiple owners, it works like a partnership. You can also elect to classify your LLC as a corporation for taxes, which means you will need to pay taxes at both the corporate and individual level.<\/p>\n The IRS<\/a> has a full list of tax forms, and we’ve pulled out the most relevant for small business owners. Keep in mind this is not a complete list, and you may need to submit others, depending on your business situation.<\/p>\n Schedule C <\/em><\/strong>\u2013 Use this form to calculate your profit\/loss from a sole proprietorship.<\/p>\n Form 1065 <\/em><\/strong>\u2013 Use this form to calculate the profit\/loss from a partnership.<\/p>\n Schedule K-1 <\/em><\/strong>\u2013 In a partnership, each owner needs to submit a Schedule K-1 as part of their individual tax return to report their share of the income.<\/p>\n Form 1120 <\/em><\/strong>\u2013 Use this form to calculate your profit\/loss from a corporation.<\/p>\n Form 940<\/em><\/strong> \u2013 Use this form to report the amount of unemployment taxes you paid on behalf of your employees under the Federal Unemployment Tax Act (FUTA).<\/p>\n Form 941 <\/em><\/strong>\u2013 This form helps you report what you paid your employees in wages, as well as the taxes you withheld for them. You need to submit this every quarter (April 30, July 31, October 31 and January 31).<\/p>\n W-4 <\/em><\/strong>\u2013 Anytime you hire a new employee, they need to complete a W-4 to estimate their tax withholding. This way, you know how much to take from their paycheck for taxes.<\/p>\n W-2<\/em><\/strong> \u2013 In January, you send each employee a W-2 which lists their total wages for the year, as well as how much tax you withheld. They need this information to prepare their tax return.<\/p>\n 1099<\/em><\/strong> \u2013 If you hire any independent contractors, you’ll need to send them a 1099 in January listing what you paid them during the previous year.<\/p>\n As you prepare for your small business tax return, here are some of the documents you may need to put everything together.<\/p>\n Gross receipts, invoices and all other sales records <\/em><\/strong>\u2013 You’ll need this information to calculate your total income for the year.<\/p>\n Inventory records, for the cost of goods sold <\/em><\/strong>\u2013 If your business bought raw materials and inventory before selling the final product to customers, keep the purchase records so you can deduct the cost of goods sold.<\/p>\n Bank and credit card statements <\/em><\/strong>\u2013 With this information, you can identify your income and business deductions throughout the year.<\/p>\n Business expense receipts <\/em><\/strong>\u2013 To identify all your deductions, it helps to have the actual receipts. Keep track of business expenses like travel, equipment, office supplies, insurance, repairs, advertising, professional fees and rent.<\/p>\n Depreciation schedules <\/em><\/strong>\u2013 For long-term business assets that apply for depreciation, you should record when you bought each asset and at what cost, whether you sold any of them, and the amount of personal use for an asset (if any). This information is used to calculate your depreciation deduction.<\/p>\n Payroll documents <\/em><\/strong>\u2013 You’ll need to confirm how much you paid in wages to employees and contractors, as well as the taxes you paid on their behalf. You can do so through their W-2s, their 1099s, Form 940 and Form 941.<\/p>\n Previous tax returns <\/em><\/strong>\u2013 If you’ve submitted tax returns for your business in the past, you can use that old information as a guide to prepare this year’s return.<\/p>\n The IRS<\/a> lists key deadlines:<\/p>\n Estimated taxes (April 15, June 15, September 15, January 15)<\/em><\/strong><\/p>\n The IRS expects you to pay business taxes throughout the year. You are supposed to make four payments on these deadlines: April 15, June 15, September 15 and January 15 of the following year. For example, your last estimated payment for 2019 taxes is due January 15 of 2020. Missing these deadlines can lead to extra penalties, which can impact how much tax a business pays.<\/p>\n Provide employee W-2s and contractor 1099s (January 31)<\/em><\/strong><\/p>\n If you hire employees, every year you need to issue them a W-2, which lists what they were paid, as well as the tax withholding. With contractors, you give them Form 1099 which only lists how much they were paid, according to QuickBooks<\/a>. Contractors handle their own tax withholding. Both employees and contractors need these forms by January 31, so they have time to prepare their personal tax returns.<\/p>\nThe Impact of Your Business Structure<\/h2>\n
Key Tax Forms<\/h2>\n
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<\/p>\nDocuments for Your Tax Return<\/h2>\n
Tax Deadlines<\/h2>\n