Small businesses are hit the hardest by taxes because they need to fulfill the many state and federal taxes, including payroll taxes, local taxes, self-employment taxes, sales taxes, excise taxes and more. Planning, preparing and filing these various taxes takes up much time, effort and resources. Not surprisingly, many small businesses find themselves non-compliant because they missed a tax that they were required to pay.
A small business, irrespective of its type, should consider paying attention to the items discussed below, as these are areas where small businesses commonly make mistakes.
You are required to pay self-employment tax if your total business income is more than $400. Self-employment taxes and estimated tax payments typically must be made every quarter. Filing quarterly is more beneficial for small businesses as they can keep track of the taxes they are paying, and make changes in their financial planning to possibly lower them.
If you have employees working for you, you need to withhold a portion of their income in order to pay taxes to the IRS. An employer is responsible for tax payments for their employees, and the IRS strictly punishes non-compliance with heavy penalties. Even a corporate structure or LLC for personal liability protection is not immune. The IRS can hold a business owner personally responsible for the non-payment of payroll taxes, too.
Payroll taxes can often be complicated to handle. Small businesses should consider hiring help from payroll companies to reduce their tax paperwork and be sure they will stay compliant at all times. If you hired unemployed workers, you might qualify for an exemption.
Organize Your Records
Organizing your tax records, including all the receipts of the deductions you claimed, can save you much time in preparing taxes. As during an IRS audit, the IRS can ask for any tax document, no matter how old, at any point in time. Therefore, it is a good idea to create different folders for each year or quarter and keep all your tax documents in it. Store the files in a safe place where they cannot get damaged.