It’s tax time!
If hearing the words “tax season” makes you want to jump back under the covers, you’re not the only one! Filing taxes as a small business owner or entrepreneur can feel intimidating, but we’re here to make it simple.
First things first, you need to know the tax filing deadline – for most small businesses, the deadline to file is April 15th. (But our SCorp, partnerships, and corporations deadline is March 15th.)
The second major thing to know is how the IRS breaks up business taxes. For small business owners, there are 4 categories to be aware of (unless you have employees – then there’s an extra one!):
- Income tax
- Estimated taxes
- Self-employment tax
- Excise tax
That’s a lot of taxes! But don’t freak out just yet – we’ll walk you through which ones you need to file for your business and how to file each category.
(And if you’re way past the point of freaking out, you can always reach out to see how we can help!)
Income Tax
Unless you’re a partnership, all businesses need to file income tax. Here’s the breakdown of how to do it:
Step 1: Gather all your financial records from the year. This includes income statements, expense receipts, invoices, bank statements, and any other relevant documents.
Step 2: Pick your form. Our single-member LLCs and sole proprietors file using Form 1040 Schedule C (Profit or Loss from Business), but there are different ones to use if you’re a partnership or corporation. The form you use depends on your business structure.
Step 3: Calculate your business income and claim tax credits. Your business income is simply total income minus expenses. If you qualify for tax credits like the Small Business Health Care Tax Credit or the Work Opportunity Tax Credit, make sure to get those, too.
Step 4: File! You’re done!
Filing taxes is way easier if you’ve been tracking your expenses and income throughout the year. Keep those receipts – it will save you a headache in the long run.
Estimated Taxes
If you suspect you’ll owe $1,000 or more when taxes are due, it’s time to fill out an Estimated Tax form. You’ve probably been paying estimated taxes quarterly. Most business owners project how much they expect to make and pay taxes in advance (this is one way to avoid penalties and interest). Here’s how to tackle it this quarter:
Step 1: Estimate your income and deductions. Project your business income for the current tax year (this means all sources of income in addition to sales). Then estimate your business deductions. These could be rent, utilities, supplies, or other allowable business expenses. Talk to your bookkeeper or accountant about what this includes–depending on how you categorize certain expenses, they can be completely deductible!
Step 2: Calculate your taxable income and tax liability. Subtract your estimated deductions from your estimated income to determine your taxable income. Then, use the taxable income you calculated to estimate your tax liability for the year. (You can use the tax rates and brackets provided by the IRS.)
Step 3: Fill and file! Complete Form 1040-ES and file – easy peasy!
Don’t forget to repeat this process every quarter to stay on top of your estimated taxes.
Self-Employment Tax
If you’re self-employed and your net earnings from self-employment are $400 or more, you generally need to pay self-employment tax. This tax covers your contributions to Social Security and Medicare.
Step 1: Grab all your documents. Think invoices and 1099s – anything that shows what you’ve earned.
Step 2: Calculate your net earnings and taxable income. To figure out your net earnings, subtract deductible business expenses from your gross self-employment income. Then, use your net earnings from self-employment to determine your taxable income for the year. This amount will be used to calculate your self-employment tax.
Step 3: Calculate your tax liability. Use Schedule SE (Self-Employment Tax) to calculate your self-employment tax liability. The form guides you through the process!
Step 4: Fill and file! Once you’ve calculated your self-employment tax using Schedule SE, transfer the total self-employment tax amount to Form 1040. You’ll include this amount on the appropriate line of your Form 1040.
Self-employment taxes can be tricky, so don’t panic if you get stuck. Each of the forms provided by the IRS has instructions on how to file!
Excise Taxes
Excise taxes aren’t very common for small business owners, so we’ll keep this brief. Basically, if you’ve sold goods like alcohol, tobacco, or gasoline, you probably owe taxes on these items. If you do owe excise taxes (which only applies to certain states), you’ll probably need to fill out Form 720, the Quarterly Federal Excise Tax Return.
Staying Ahead Of The Curve
Tax time doesn’t have to be scary. As long as you’re keeping track of your business expenses and profits throughout the year, you’re well prepared to file.
We also know that small business owners are busy, and you might not have the time or energy to do this all on your own.
If you find that you don’t have time to do your taxes this year, we’ll help you organize your books so it’s easy to know your tax numbers. Explore our services and see how we can fuel your business success.
