Filing small business taxes as a new business owner can be a shock if you didn’t plan to pay those expenses.
There are many nuances to filing taxes for a small business, and you should consult a tax professional for your unique circumstances. But this guide for filing small business taxes can help you get started.
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The goal for your small business taxes is to know what you owe, minimize it through deductions and not to overpay. Tax returns are just the government returning your money to you, after all.
Many small business owners have to strategically save for taxes throughout the year. If you understand your tax liability, this provides a better estimate for when you file and pay your taxes.
The key to minimizing tax expenses is to develop a system for keeping financial records. Not only will you know how you spend your money, but it will help you prepare your small business taxes and deductions more effectively.
No matter what system you use — paper ledger, bookkeeping software or professional accountant — consider keeping your personal and business accounts separate. It’s easier to understand your business income and expenses, and you can better protect your personal finances.
Every small business must pay taxes, but not all small business taxes are the same. These are the five types of business taxes you may have to pay when you file your small business taxes:
Learn how to file self-employment taxes step by step.
Before you can calculate your tax liability, you have to work from your gross taxable income.
This equation calculates gross taxable income:
Total Income – Deductions – Tax credits = Gross Taxable Income
You take your gross taxable income and apply the federal tax rate for your business entity. This is what you pay in taxes.
You decide on a legal business structure when you form a business. And each type of business entity has its own tax rules. These include:
Get help to choose which business structure is right for your small business.
The IRS recommends you use Form 1040-ES to help calculate and estimate taxes if you’re self-employed or run a small business. There’s an alternative form for non-resident aliens to use called Form 1040-ES(NR).
If you classify your business as a sole proprietor, partnership or LLC, then the IRS classifies your business as a pass-through entity. This means that your income passes through your business and is lumped in with your personal income. You’re adding your business income to your personal income, so you follow the personal tax brackets.
Tax rates and standard deductions for single filers and those filing jointly can change every year. Check with the IRS to see the parameters for this year.
Under the Tax Cuts and Jobs Act, taxes for C-corporations have been simplified with a flat tax rate of 21%. So at any income level, your C corp pays 21% of its income in taxes.
If you’re a small business owner who classifies your business as a C corp, your business will have to pay the 21% tax rate on its income, and you will also have to pay taxes on the dividends you receive from your C-corp in your personal taxes.
Some companies hire contract workers or freelancers as 1099 employees. The IRS often classifies you as a sole proprietor if you have not formally established a business entity.
Learn how to file taxes as a 1099 independent contractor.
There is a big learning curve, but once you understand the deadlines you can replicate it in future years. Tips for streamlined business taxes include:
Sometimes it can be simpler to work backward through your small business taxes. You can use tax deadlines to understand different tax requirements.
Here are some critical dates to know:
Read our guide to specific tax dates for this year.
Each state has its own state tax obligations and guidelines. Check with your state agency or meet with a tax professional to understand what’s required where you do business.
Read more tips for filing small business taxes for the first time.
You have to pay taxes yearly for your small business, but you get to decide whether to do it all at once or make smaller quarterly payments.
Paying your taxes annually can be difficult for small business owners and self-employed individuals. You have to set aside an estimated amount of money for your tax return.
The amount can sometimes be larger than expected. It can hit you hard if you don’t account for typical items that are withheld on a traditional paycheck, like Medicare and Social Security.
The IRS recommends that most self-employed workers pay their taxes quarterly. You generate an estimate using Form 1040-ES and pay the IRS as you go. Doing this helps you avoid penalties for not saving enough of your annual earnings.
Many small business owners will need to estimate their taxes to make quarterly tax payments throughout the year. Look at your past earnings to gauge what your future earnings will be so that you can make estimated payments.
A deduction allows you to subtract from your taxable income so that you owe a smaller amount of taxes to the IRS.
There are many relevant deductions for self-employed people and small businesses. An experienced tax professional can help you maximize deductions and plan for future tax years.
Read more about reducing taxable income and tax-saving strategies for business owners.
If you did the prep work, filing your small business taxes can be a breeze. The paperwork you’ll need to file includes:
Depending on how you file your taxes — paper forms, tax software or through a tax professional — you’ll need the right documents.
An Employer Identification Number (EIN) identifies your business entity. If you don’t already have an EIN from when you established your business, you will need one to put on your tax forms. You can apply for a free EIN through the IRS.
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Jessica spent over a decade working in education before moving into content marketing. She has worked on content marketing campaigns in the edtech, real estate, and personal finance sectors. She has a passion for working with companies that take the time to educate their customers. When she’s not working, she’s probably outside with her two kids.
