Are you a small business owner who’s having a hard time understanding small business taxes? If so, you’re not alone. Most business owners struggle with understanding how to pay taxes.
Check out this small guide to learn a few tax tips for businesses.
Select Your Business Type for Taxes
When starting a business, it’s critical to understand the many legal forms available, as each has its own set of tax ramifications. Sole proprietorships, C corporations, S corporations, and limited liability companies (LLCs) are all legal formations with distinct tax implications.
What Are Small Business Taxes?
The taxes you payout are determined by how your company is set up. However, there are three kinds of business taxes, which include the following:
Taxes must be estimated and paid quarterly by freelancers, contract workers, and small business owners who are expected to owe a minimum of $1,000 in taxes. If you don’t pay the taxes back, you could face penalties and interest, as well as a slew of other problems. As a result, you must ensure that you are aware of the estimate’s deadlines and payment timeframe.
All businesses are expected to file a yearly income tax return. For instance, C corporations pay income taxes per the corporate rate, and other companies are considered pass-through organizations and are taxed via an individual rate.
Individuals who are self-employed must pay self-employment taxes. The taxes that they pay are generally Medicare and social security taxes. If you earn over $400 or work for a church organization, these taxes also apply. However, this does not apply to individuals who are religious figures like ministers and nuns.
Furthermore, if you have a staff of employees, you also have to pay employment taxes. These taxes include federal income tax withholding, social security and Medicare taxes, as well as federal unemployment tax.
Take Advantage of Tax Season
Although small businesses have lots of taxes to pay, there is a way to get some relief. If you’re just starting out, write off your startup costs. Brand new businesses can deduct expenses from their taxes. The IRS permits up to $5,000 worth of deductions in startup costs.
Standard deductions include business insurance, real estate, office supplies, office space, business assets, business cards, etc. You can also file deductions for things like the cost of employee training and advertising. By writing off these things, you can reduce your tax bill.
If you make a good profit in your first year of business, you’ll definitely have to pay the IRS. Thankfully, there are several ways that you can lower your bill.
Click here for more information about business bookkeeping.
Understanding Small Business Taxes
Hopefully this guide helps you learn more about small business taxes. There’s a lot that goes into tax season when you run your own company. However, there are plenty of resources that can help you manage your taxes, as well as save on your tax bill.
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