Benjamin Franklin is often quoted as having said, “In this world, nothing can be said to be certain, except death and taxes.” Taxes are a cost of doing business, and small businesses pay federal taxes, along with state and local taxes.
Small Business Taxes
Small businesses pay federal taxes and other taxes, such as:
- Income tax. All businesses, except partnerships, are required to file a federal income tax return each year. Partnerships only file an information return because partnership income is passed through to the partners, who are taxed as individuals. Generally, businesses pay tax on income by making quarterly payments of estimated tax during the year, with a final tax filing after the end of the year.
- Employment taxes. Each enterprise with employees must pay Social Security and Medicare taxes, federal income tax withholding, and federal unemployment (FUTA) tax.
- Federal excise taxes. Federal excise taxes can be levied depending on the type of business structure.
- State and local taxes. State and local tax authorities can impose other taxes, including income taxes, property taxes, franchise taxes, and business license fees.
When small businesses pay federal taxes, they also benefit from tax deductions for business expenses and depreciation, along with tax credits like the Work Opportunity Tax Credit (WOTC) and the Small Business Health Care Tax Credit.
How Small Businesses Pay Federal Taxes and Other Taxes
Each business must select a tax year.
Federal taxes are based on a specific business structure. That structure defines the types of business taxes to be paid and the forms that are used for income tax, estimated tax, employer tax, and excise tax. State and local taxes vary by location and business structure.
Small businesses pay federal taxes and other taxes based on these principles and best practices:
- Keep thorough and accurate records of all business income and expenses throughout the year to make tax filings easier and error-free.
- Accurately report all income. Not doing so is a big red flag to the IRS.
- Make sure your business is correctly classified.
- Keep all business and personal expenses totally separate.
- Manage payroll diligently and thoroughly.
- Understand all tax deadlines to know when to file tax returns.
- Identify and be sure to claim all tax deductions and tax credits.
- Take advantage of capitalization rules.
- Pay estimated tax payments on time. They are generally due on April 15, June 15, Sept. 15, and Jan. 15 of the following tax year.
- Get professional tax help to save money, help you grow your business, and prevent tax payment problems.
Reasons to Hire a Professional Small Business Accounting Service
Outsourcing accounting and tax preparation makes sense because it helps avoid costly mistakes and helps you plan ahead for a more prosperous future. You won’t need to worry about knowing about changes in tax laws. You’ll know for sure that your business financials are on track, and you’ll get valuable help to pinpoint and solve problems.
Seek Professional Accounting Assistance
Contact Irongate Business Partners, serving small businesses in the Lowcountry of South Carolina. We provide bookkeeping, financial analysis, and outsourced accounting services. Some of our major client categories include construction companies, restaurants, HVAC and home services companies, and medical practitioners. Our aim is to empower growing small businesses with accounting and financial insights and services that otherwise might be out of reach.