Small Business & Taxes

More than half of Americans either own or work for a small business. Since 1963, America has been celebrating the National Small Business Week from May 1-7 to recognize the contribution of American entrepreneurs and small businesses. Taxes are an integral part of every small business. To help them remain compliant with the country’s tax laws, here are the tax obligations that every small business needs to meet.

Income Tax Return

All businesses, including partnerships, must file a tax return each year. Depending upon the type of business (corporation, sole proprietor, S corporation, Limited Liability Corporation, etc.), the appropriate tax forms that must be filed will vary.

For example, sole proprietorships annually file Form 1040 and Schedule C (Form 1040) or Schedule C-EZ (Form 1040). They may also need to file estimated taxes, and an employer’s annual federal tax return. For complete information on which tax forms to file for each type of business, review ‘Business Structures’ at IRS.gov.

Filing Estimated Taxes

If any part of your income does not have taxes withheld, you may need to pay estimated tax. Income generated from self-employment, rent, interest, dividends, alimony, prizes etc. are typical examples of income that requires taxpayers to pay estimated taxes. To file estimated tax, sole proprietors, S corporation shareholders, and the self-employed file Form 1040-ES, Estimated Tax for Individuals. However, corporations file Form 1120-W, Estimated Tax for Corporations.

Self-Employment Tax

The self-employed do not get their taxes withheld. They must pay social security and Medicare taxes through self-employment tax (SE tax). Only those whose net earnings from self-employment reach $400 or more are required to pay SE tax.

Employment Taxes

Small businesses with one or more employees need to pay employment taxes, which include:

  • Social security and Medicare taxes
  • Federal income tax withholding
  • Federal unemployment (FUTA) tax

Generally, employers that withhold income tax, or social security and Medicare taxes, are required to file Form 941, Employer’s Quarterly Federal Tax Return each quarter.

Excise Taxes

Only certain types of businesses need to pay excise taxes. These include:

  • Manufacturers or sellers of certain products
  • Certain trucks, truck tractors, and buses used on public highways
  • Businesses accepting wagers or conducting wagering pool or lottery

Depending upon the type of business activity, excise taxes can be filed using Form 720, Form 2290, Form 730, or Form 11-C.

Small businesses can find it challenging to report and pay the variety of taxes imposed on them. Though the possibility of an IRS audit is slight, businesses must ensure compliance at all times. Using the help of a licensed tax professional can assist small business owners to understand and fulfill their tax duties throughout the year.