Small businesses are required to pay taxes just like everyone else, but they face more complicated filing requirements and typically have quarterly or monthly deadlines. FindLaw's "Business Taxes" section includes information about your tax obligations and benefits (such as valuable deductions and incentives). This section will help you prepare for a business audit, understand which tax forms are needed, take advantage of significant tax deductions, learn the difference between current and capital expenses, and more. See FindLaw's Tax Law section for more general information about state and federal taxes.
Employment and Payroll Taxes
If you are an employee (as opposed to an independent contractor, or freelancer), you're likely aware of the taxes, Social Security payments, and other expenses deducted from your paycheck. It is your employer's responsibility to pay these taxes, some of which go toward Medicare and other social programs. If it is determined that you paid too much in taxes through these deductions, you will likely receive a refund. These are collectively referred to as "payroll" taxes.
Business owners and those who handle their employer's payroll also are responsible for paying into federal and state unemployment insurance systems. This is not paid out of the employee's paycheck, although it is based on wage rates.
Small Business and Income Taxes
Unless your small business is incorporated, you likely will be paying business taxes as personal income. If you are a sole proprietorship or run your business as an LLC (and are the sole owner), you may report your business income and expenses on a Schedule C form. Corporations and some LLCs, though, must file a separate corporate tax return (Form 1120).
Those who are self-employed (including sole proprietorships and independent contractors) typically file annual returns but pay estimated taxes on a quarterly basis. In addition to income tax, those who are self-employed also pay a self-employment (SE) tax. This pays into Social Security and Medicare, which otherwise would be deducted from your paycheck as an employee.
Business Tax Deductions
Since any business requires certain expenses in order to grow, state and federal tax boards allow certain exemptions in order to encourage investments. In order to successfully manage income and cash flow, it is absolutely crucial to understand how these deductions work. The following types of business expenses are generally deductible (this is by no means a comprehensive list):
- Office rental (or home office)
- Employee compensation
- Travel
- Business supplies
- Bad debts
Business Tax Audits
If a taxing authority (typically the IRS) has reason to believe you owe more taxes than reported, then it may conduct an audit. This is one reason you need to maintain tax information from the past several years. The auditors will ask for a number of documents and records, including checks and bank statements; online records; calendars and appointment books; and other materials.
Click on a link below to learn more about business taxes.
