Helping small business owners with their tax challenges and guiding them toward financial success is what makes my work so rewarding.
Whether you’re just starting out or you’re an experienced entrepreneur, today’s post is for you. I’ve rounded up the most common tax questions my small business clients ask and organized the answers all in one place to help you find the tax information you need and want.
How do I file taxes?
Knowing how you should file taxes and which forms to use depends on what kind of business you have. This is called your business entity or business structure. Most small business owners have one of 3 types:
- Sole Proprietorship: A sole proprietorship is the simplest business structure. You don’t need to do anything or file any special paperwork to create a sole proprietorship; you just open up shop! To pay taxes as a sole proprietor, you’ll need to file a Schedule C with your personal income tax return and pay your business taxes as an individual.
- Limited Liability Company (LLC): A Limited Liability Company (LLC) can be created by filing paperwork with your state, and some states charge a fee for this. The benefit of operating an LLC is that it offers the business owner legal protection by separating their personal and business liabilities. To pay taxes as a single-member LLC, you’ll file a Schedule C with your personal income tax return (just like you would with a sole proprietorship) and pay your business taxes as an individual.
- S-Corporation: An S-Corporation (S-Corp) status can be elected by filing a form with the IRS. Having S-Corp status can mean some serious tax savings for small business owners, but you will have to file a separate tax return using a Form 1120-S, and you’ll have to pay yourself a reasonable salary. Because there are costs that come with putting a payroll system in place and having a separate business tax filing, I typically only suggest small business owners look at making the S-Corp election if your profit is at least $50,000 per year.
What small business tax deductions and tax credits are available?
I’ve written the ultimate guide to tax deductions for small business owners, which will run you through everything you need to know about small business deductions as well as tips for the most-used deductions for things such as supplies, home office, and travel.
Two things to keep in mind when thinking about tax deductions are:
- You need to have a separate banking and credit card account for your business as well as some expense tracking software so that you can take full advantage of your small business tax deductions and so you’ll be prepared if the IRS wants proof of your expenses.
- You can and should be looking for any available tax credits in addition to tax deductions.
If you’re ready to run through the list of tax deductions and see how many apply to you, hop on over to that post. But don’t stop there! Make sure you look through my list of small business tax credits, too!
Do I need to pay quarterly tax payments? How do I estimate and pay quarterly tax payments?
This one always throws new entrepreneurs for a loop. If you’re already nervous about figuring out how to pay your business taxes once a year, hearing that you might have to pay 4 times per year seems daunting and ridiculous. I get it.
If you’re wondering if you need to pay estimated quarterly taxes, the answer is probably. Basically, if you know you’ll owe more than $1,000 to the IRS at the end of the year, then you should pay taxes quarterly to avoid underpayment penalties. Also, your state may have different requirements, so make sure to check with them as well.
Even though it sounds complicated, your estimated quarterly taxes will cover your income tax and self-employment tax (and alternative minimum tax, if applicable), and paying these estimated taxes quarterly will save you from having a big, unexpected tax bill at the end of the year.
To figure out the exact (or close to exact) amount that you should pay each quarter, you should check with your accountant. They’ll factor in your marital status, deductions, credits, dependents, and several other variables to come up with a precise amount.
If you’d like to calculate a good estimate on your own, you can use my free quarterly tax payment calculator to get a number that should work well for your estimated quarterly tax payments to both the IRS and your state department of revenue.
The easiest way to pay your estimated quarterly taxes is to use the Electronic Federal Tax Payment System (EFTPS). You can set up an account with EFTPS and make all of your tax payments to the IRS through the site. You can also set up installment agreements and a different payment schedule if you prefer to make payments more often than quarterly. If you’d prefer, you can also pay through your phone using the IRS2Go app or you can use Form 1040-ES and send payments via snail mail.
Do I need to pay self-employment taxes? How do I pay self-employment taxes?
If you net $400 or more a year from self-employment income, then you must pay self-employment tax. This tax actually consists of 2 taxes: Social Security and Medicare. You can figure your self-employment tax yourself using Schedule SE and then report that amount on your Form 1040.
You’ll pay your self-employment tax when you pay your estimated quarterly taxes. If you don’t make quarterly payments, then you’ll pay these taxes and any applicable penalties when you file your yearly income tax return. (For instructions on how to pay your self-employment taxes quarterly, scroll up to the previous question.)
What are the tax filing deadlines I need to know for my small business?
Please pull up your phone’s calendar or pull out your planner because do I have some dates for you! Below are all of the dates you may need to remember when it comes to small business taxes and filing deadlines.
One side note: These are the typical filing dates, but if the date falls on a weekend or holiday, it will be moved to the next business day, so be mindful of that.
Estimated Quarterly Tax Filing Deadlines
- 1st quarter taxes for January through March: Due April 15
- 2nd quarter taxes for April through June: Due June 15
- 3rd quarter taxes for July through September: Due September 15
- 4th quarter taxes for October through December: Due January 15
Small Business Income Tax Filing Deadlines when Using Calendar Year
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Partnerships, LLCs, and S-Corporations: Due March 15
- With Filing Extension: Due September 15
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Sole Proprietorships and C-Corporations: Due April 15
- With Filing Extension: Due October 15
Small Business Income Tax Filing Deadlines when Using Calendar Year
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Due the 15th of the 4th month after the close of your fiscal year
- For example, if your fiscal year ends in May, then your filing deadline is September 15.
W-2 Forms
- Submit to Social Security Administration: Due January 31
1099 Forms
- Submit to IRS: Due January 31
S-Corporation Election
- Submit to IRS: Due March 15 (for previous year’s election)
I love to help small business owners understand their taxes so they can focus on the parts of their business that really matter to them. My firm specializes in helping creative entrepreneurs do just that. If this sounds like something you want help with, reach out to us or join my Know Your Worth course where I provide lessons, videos, and beautiful, downloadable guides to help take the stress out of taxes and bookkeeping.
I’ve also invested lots of time and thought into my blog posts. All of that knowledge is free and ready for you! I hope you take the time to look through my posts. You can even search for the specific topic that interests (or troubles) you today.
