Running your own business comes with many responsibilities, and among those is filing taxes. The last thing a business owner wants at the end of the year is to be hit with a hefty tax bill. Planning, estimating, and paying taxes is an important part of owning a business so here are some tax basics that every business owner needs to know about.
Get an EIN Number
Every business should have an Employee Identification Number, or EIN. Even if you don’t plan on hiring employees, you will still need this number. It is assigned by the IRS and much like a social security number, it is used when you file business tax returns, make tax payments, or open business accounts.
Track Business Revenue and Expenses
It is important to keep track of your business’ income and expenses throughout the year so you can properly file your taxes at the end of the year. Not only do accurate records help you estimate the amount of taxes your business will owe, but it will ensure that you don’t miss out on valuable tax deductions that your business is eligible to claim. You can either run all of your business expenses through a separate account, or you can invest in accounting software to help you track your income and expenses.
Be Familiar with State Business Taxes
In addition to business taxes required by the federal government, you may be required to pay state and local income taxes as well. Nearly every state has a business or corporation tax and all states require payment of state workers’ compensation insurance and unemployment insurance taxes.
Understand How to File Your Tax Return
The way in which you will file your taxes depends on your business structure. These include:
*Sole proprietorship or single-member LLC
*Partnership or multiple-member LLC
The deadlines for filing under each of these structures will vary. In addition to deadlines, you need to be familiar with claiming any available deductions and tax credits, as this can lower your taxable income and the amount of taxes you pay.
Pay Estimated Taxes
The IRS expects businesses to pay taxes on income as it is earned throughout the year. This means that you will be paying estimated quarterly taxes. There are two ways to calculate your estimated quarterly taxes:
- If you receive income throughout the year, calculate the entire year’s income and deductions, figure out the taxes you will owe, and divide that amount into four even payments.
- If you don’t receive income throughout the year, calculate what you owe each quarter based on what you’ve actually received and spent so far during that year.