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Beginner’s Guide to Filing Small Business Taxes
Unfortunately, paying taxes is a part of life that you cannot avoid. For entrepreneurs, however, there are even more obligations that you will need to understand compared to the average employee.
Filing small business taxes incorrectly can come with a number of different consequences. Some of these could even be financial penalties.
Let’s explore everything you need to know about how to file small business taxes.
What Type of Taxes Do I Need to Pay For My Business?
Before you can move forward, you need to understand the different types of taxes that you need to pay as a business owner.
This is often where those who are filing small business taxes for the first time begin to feel overwhelmed. Let’s take a look at business taxes you need to keep in mind.
If your company sells goods or services to customers, there’s a good chance that you will need to pay sales tax. Interestingly, many people are unaware of the fact that businesses pass on this amount to their customers in order to maintain their profit margin.
More often than not, this amount is negligible, as many businesses sell low-ticket items (such as food and basic goods). However, you can encounter issues if you do not set aside this tax and report it.
For businesses that have employees, you will also be responsible for collecting payroll taxes. This money is used to pay for Medicare, Social Security, and unemployment insurance.
It’s customary to withhold this amount of money from the paychecks you provide to your employees. The breakdown of their paychecks should also clearly detail the portion of their gross income that is being allocated toward payroll taxes.
As you might assume, any company that profits will need to pay income taxes. This is always done at the federal level, but the state your company is based in may also impose state taxes.
In general, your income tax obligations will make up the bulk of your overall taxes. You also need to consider what tax bracket you find yourself within based on your income.
This is due to the fact that the percentage of your income that you pay in taxes will change depending on how much money you make.
It’s not uncommon for local and state governments to require businesses to pay taxes on owned property. Not only does this apply to real estate, but it could even extend to business equipment.
This tax is set into place due to the fact that your business is taking up available land within that state or region.
More often than not, the above taxes are the only ones that you will need to be responsible for. However, your company may also experience miscellaneous taxes depending on the industry that you operate within.
For example, businesses that deal with goods like alcohol or fuel may be subject to excise taxes. You might also find yourself needing to pay dividends tax or franchise taxes.
As previously mentioned, however, only a select few businesses will need to set aside money for these types of payments.
How Do I File My Taxes?
Small business tax filing is much different than filing taxes as a conventional employee.
However, it should be noted that it is only inherently more time-consuming — it’s not necessarily more difficult. Let’s take a look at how you can get started.
Understand the Type of Taxes You Owe
It shouldn’t come as a surprise that understanding the type of taxes you owe is the first step toward making the appropriate payments.
Consult the information above and consider what type of taxes that your company is responsible for paying. If you aren’t quite sure, it’s recommended to get in touch with a tax professional.
Gather Your Supporting Documentation
This can come in many different forms. For most companies, it includes payroll documents, transaction information, etc.
Put simply, your supporting documentation will be all documents that are related to the money that your company spends and receives.
Fill Out the Required Forms
Depending on the type of business that you own, you’ll need to fill out the appropriate forms.
Some are more complex than others, but it’s essential you handle them accordingly. Otherwise, you run the risk of incurring an IRS audit.
This is a scenario in which the Internal Revenue Service investigates the information that you submitted.
Although this can occur randomly, the IRS conducts audits when they feel as though someone is misrepresenting their tax obligations. Want to learn more about this situation?
You can check out this guide to IRS audit timeframes.
File Your Taxes With the IRS
After you’ve completed your taxes, you can file them with the IRS. You have the option to mail the necessary documents to the organization, but you can also file electronically.
For this reason, small business tax filing software has become more popular than ever before due to the convenience that it provides.
Filing Small Business Taxes Can Seem Overwhelming
However, it’s not nearly as difficult as you might believe at first.
The above guide will help new entrepreneurs have a strong understanding of how to go about filing small business taxes. This will allow you to avoid obstacles in the future that you may have encountered.
Looking for more tips that can help you out later on? Check out the rest of our blog for plenty of more useful information.
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