As a small business owner, you need to know your federal tax responsibilities. Understanding and complying with tax requirements is a necessary aspect of doing business. The IRS.gov website for small businesses provides extensive tax information and online tools and resources.
For additional information refer to IRS Publication 583, Starting a Business and Keeping Records. This publication provides basic federal tax information for people who are starting a business. It also provides information on keeping records and illustrates a record-keeping system.
As we discussed previously, when starting a business you must decide what form of business entity to establish. Your form of business (e.g., sole proprietorship, partnership, LLC) determines what taxes you must pay and how you pay them.
The following are the four general types of business taxes.
- Income Tax
- Estimated Taxes
- Self-Employment Tax
- Employment Taxes
All businesses except partnerships must file an annual income tax return. Partnerships file an information return. The form you use depends on how your business is organized. Refer to Business Structures to find out which returns you must file based on the business entity established.
The federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year. An employee usually has income tax withheld from his or her pay. If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. If you are not required to make estimated tax payments, you may pay any tax due when you file your return.
Generally, you must pay taxes on income, including self-employment tax (discussed next), by making regular payments of estimated tax during the year. For additional information, refer to Estimated Taxes.
Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. Your payments of SE tax contribute to your coverage under the social security system. Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits.
Generally, you must pay SE tax and file Schedule SE (Form 1040) if either of the following applies.
- If your net earnings from self-employment were $400 or more.
- If you work for a church or a qualified church-controlled organization (other than as a minister or member of a religious order) that elected an exemption from social security and Medicare taxes, you are subject to SE tax if you receive $108.28 or more in wages from the church or organization.
Note: There are Special Rules and Exceptions for aliens, fishing crew members, notary public, State or local government employees, foreign government or international organization employees, etc. For additional information, refer to Self-Employment Tax.
When you have employees, you as the employer have certain employment tax responsibilities that you must pay and forms you must file. Employment taxes include the following:
- Social security and Medicare taxes
- Federal income tax withholding
- Federal unemployment (FUTA) tax
For additional information, refer to Employment Taxes for Small Businesses.
||This information provides a brief overview from the Internal Revenue Service of issues and decisions involved in owning a small business and avoiding common pitfalls.