Small businesses are required to pay many kinds of taxes, including taxes on behalf of their employees. The taxes you need to pay depend on the type of business you are running, but there are some common taxes that most small businesses are required to pay.
The basic types of taxes that usually every type of business needs to pay include:
- Income tax
- Self-employment tax
- Employment tax
Every business needs to pay income tax every year. If you do not pay taxes through withholding, you will then need to pay estimated taxes at certain intervals throughout the year. If you are not required to pay estimated taxes, then you may file your tax return annually. The form you use to file taxes depends on how your business is organized. Partnerships do not need to file a business income tax return and instead must file an information return.
The self-employment tax needs to be paid by individual taxpayers that work for themselves. A self-employed person is one that chooses the place and the time of the work, and how it must be done. Payments made for the self-employment tax go to social security and Medicare tax. Self-employed individuals may also need to pay estimated taxes on their income. However, you only need to pay estimated taxes if the net earnings from your self-employment are $400 or more.
As an employer, you also need to pay employment taxes. Employment taxes are the taxes employers withhold from their employees’ wages and the matching amount they pay themselves. These taxes include social security and Medicare taxes, federal income tax withholding, and federal unemployment tax. Not withholding taxes from employees’ wages and paying them to the IRS can attract heavy penalty for non-compliance.
To determine your tax liabilities accurately, you can check your tax liability according to your business structure. Using the help of a professional and competent tax preparer for the preparation of taxes is essential to correctly file taxes if you find it difficult to prepare taxes yourself.