How To Manage Your Taxes As a Small Business

Written By Karrissa Jyles

When Is The Best Time To Start Thinking About Tax Season?

For the average employed individual, tax season is thought about once a year, and that’s usually when it’s time to collect their W-2 forms and file for their tax returns.

But for small business owners, tax season is at the forefront of their responsibilities a year round—or at least it should be!

Small businesses owners face a variety of tax obligations that can increase with the specific state guidelines they operate in, such as estimated tax and state tax. 

Since taxes can be complex, it’s normal to feel overwhelmed or confused about where to start, how much to save and when to pay.

Estimated taxes for businesses are still due on April 15th!

If you’re thinking, “What are estimated taxes?” you’re in the right place.

In this blog article, we’ll review how new or established business owners can manage business taxes.


How To Manage Your Taxes As a Small Business

  • Discover what taxes small business owners pay

  • Learn how much to pay and when 

  • When to enlist help from an accountant or Financial Planner

What Taxes Do Small Business Owners Have to Pay?

The taxes you are required to pay for your business largely depend on the type of business you run. 

While there are standard business taxes that the IRS applies to every business type, they (and the amount owed) can change based on your company’s structure. 

For example, if you operate an S corporation, your business doesn’t need to pay income tax. Instead, each individual owner (or shareholder) pays a portion of the income tax on their personal tax returns.


Knowing your business type is the first step in learning what taxes you must pay. 

There are seven main types of business taxes:

  1. Income tax: Federal taxes due on any income that your business earned or received during the tax year. You’re also responsible for your state and local taxes, but each state has its own tax laws. 

  2. Self-Employment tax: Social Security and Medicare taxes due to ensure you are covered by the Social Security system as a self-employed individual.

  3. Estimated tax: Quarterly payments of your income tax. If your business’s income is not subject to withholding, or if the amount of taxes withheld doesn’t match what you owe, you must pay estimated portions prior to tax season.

  4. Employment tax: If you have employees, you must pay their Social Security and Medicare taxes, Federal income tax withholding and Federal unemployment (FUTA) tax.

  5. Property tax: Taxes due on property such as real estate or even assets such as computer equipment, vehicles, etc. Each state has its own rules about what is defined as taxable property. 

  6. Sales and Use tax: Taxes due on sales of goods and services. Some exclusions exist but it’s best to check if your state requires you to collect sales tax on your products and services.

  7. Excise tax: Taxes due on the manufacturing or selling of specific products, such as fuel, tobacco, alcohol, tires, etc.

How Much Tax Do Small Business Owners Owe?

The average tax rate for small business owners is 19.8%, with sole proprietors usually paying 13.3% and LLCs with more than member paying 23.6%

Once you know your business type and what taxes you’re responsible for, you can calculate your yearly earnings to learn what you owe.

This is easiest when you keep a good accounting record for the tax year. Your accounting record should include every financial transaction, such as loans, sales, purchases, etc. 

It’s also essential to learn your business’s tax bracket to ensure that you don’t pay too little or too much in taxes—especially to avoid any penalties. If you calculate your business’s taxes and the number seems high, you may be able to utilize certain deductions to bring the cost down.

There are designated periods for each business type to file their taxes, though they can sometimes change based on holidays and weekends. For example, Partnerships must file their annual tax returns on March 16, 2021.

Many small businesses pay estimated taxes to avoid paying too little on withheld (not withheld at all) taxes. The periods for reporting your business’s estimated taxes on earned income are below:

  • January 1st through March 31st, due April 15th

  • April 1st through May 31st, due June 15th

  • June 1st through August 31st, due September 15th

  • September 1st through December 3rd, due the following year on January 15th

Does Your Business Need Accounting Help With Taxes?

If you aren’t 100% confident in your own accounting skills, it’s in your business’s best interest to hire a Financial Planner. 

Your business’s finances are too critical to your career (and the IRS!) to make mistakes, and hiring a trusted accountant or Financial Planner to assist you keeps you and your wealth safe.

Financial Planners work with your personal CPAs to help create the strongest financial plan, and ensure that your taxes and overall business plans are managed with care.



Citations:

Karrissa Jyles
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