JCM Accounting & Consulting

Small Business Taxes

Small Business Taxes for Beginners

If you are a small business owner who’s new to it all, you’re in the right place. You are aware of the challenges you are going to face. This includes everything related to your business financials, including balance sheets, business income, tax rates, and business tax deductions.

You may also have questions about federal taxes and business tax preparation. This guide will be your starting point on the topic of small business taxes for beginners. You’ll want to pay close attention to this guide as you will likely find yourself in a situation that is much different compared to paying taxes as a regular employee.

If you want to understand the entire process from start to finish, keep reading. You will learn everything you need to know about paying taxes as a small business owner. Let’s dive right in and talk more about it.

Small Business Taxes 101: What You Need to Know

Let’s take a look at the following tax information and taxable income that you’ll want to know about as a small business owner:

tax day

1. Income tax

Businesses and their owners need to be aware of how they are subject to federal income tax.  If you live in the United States, businesses could also be subject to income taxes on the state level. Income tax will be the main tax to be aware of. 

2. Sales tax

If your business sells products and certain services, it could be subject to state sales taxes. The sales tax rate is dependent on the state, county, and city where the business operates and has a nexus. Businesses are required to collect sales tax and remit it to the state agency.

Nexus is something to keep in mind when considering whether you need to remit sales tax outside of the one that the business operates. A tax preparer will be able to help you determine whether or not you should collect a sales tax.

3. Property tax

Property tax covers buildings that your business owns. Tangible properties can also be subject to property taxes. If you are not sure about which business property other than real estate is subject to this tax, an accounting consultant will be able to help you with what is covered and what isn’t.


4. Payroll taxes

Payroll taxes are owed if salaried employees are paid. These taxes cover unemployment insurance, social security, and medicare. As an employer, payroll taxes are withheld from the paychecks of the employees. At the same time, employers will need to add in an amount from their own pay.

5. Self-employment taxes

The self-employment tax rate is 15.3% of your net profit. You will be subject to this tax if you are a single-member limited liability company (LLC), or a sole proprietorship. These are the types of business entities that are subject to paying self-employment taxes.

Keep in mind that self-employment taxes are different from income taxes. This is in addition to the income tax. There are other tax entities that business owners can use as a tax shelter from this tax.

6. Additional taxes

Businesses are subject to other corporate taxes. This can include excise taxes, franchise taxes, and gross receipt taxes among others. These taxes may depend on the business type you are running.

tax time

How much do you have to pay as a small business owner?

Corporate tax rates depend on the state you live in. They may also depend on the tax rules based on the business structure. If the structure is a corporation, your business will be subject to a 21 percent flat tax rate.

A lot of small business owners are taxed at a personal level while their businesses are filed on a pass-through tax return. A sole proprietor gets taxed self-employment tax and at the income level as mentioned previously.

What else do you need to know?

Aside from the taxes you need to pay, you’ll also need to know a few other things. Let’s take a look at the following:

Know the schedule

If you are a small business owner and potentially owe $1,000 or more in taxes in a single year, you are required to pay on a quarterly basis. Every quarter, the taxes will be due by the middle of every third month (with the exception of Q4, where the taxes are due January 15 of the next year).

For example, if you get paid in Q1 (Jan. 1-March 31), the taxes will be due on April 18. Q2 taxes will be due on June 15, and Q3 will be due on September 15.


Assess your business situation

Are you working by yourself? Do you have employees and pay wages? Do you have credits? Do you need business insurance? Assessing your business situation is important. You’ll want to know whether or not you meet any requirements to pay specific taxes such as the self-employment tax and/or payroll taxes.

For example, you will need to pay a self-employment tax if you receive $400 or more in net earnings. If you have employees, you will have to pay employment taxes for the purpose of Social Security, Medicare, and federal and state unemployment.

Hire a professional

As a business owner, you will probably be busy and not have a lot of time to focus on your taxes. That’s OK. You have professionals who can help you out with all that.

Choose a tax professional that will help you through the process. As a beginner, you’d be better off going this route (and soon after you establish yourself as a seasoned business owner).


Final Thoughts

If you are a new small business owner, paying taxes can be a daunting thing. Give yourself time to understand the basics of paying taxes. It would also be a smart idea to hire professionals to handle your taxes.

You have a business to run. Plus, you have other priorities. You don’t have to do the taxes yourself, and it’s beneficial to find the right people who will do them for you.

As long as you are following the rules and using the right financial professionals to handle your taxes, you’ll be just fine.