Income tax for a small business?

Small businesses need to keep track of the income they make for the purpose of paying the taxes on it. This is the most common and the simplest taxes you need to pay but also the one that you need to prepare to and that may require you to have an accountant at hand.

This guide will help you with the intricate rules of IRS and the proper forms you need to fill out in order to fulfill your obligations on time and in accordance to the law.

Due dates

The first thing to be aware of is the date on which you need to report the taxes and make the payments. There are penalties for those who are late with both of these and you should strive to avoid them. There are other benefits to being punctual such as having a better working relationship with IRS.

The due date is the same as it is for the personal income tax. That date is set at 15th of April and that is the date, that you should be aware of at all times.

A tax prepper?

The next question to figure out is do you need a tax prepper to help you with the process. This is often too much for a small business to afford and many small companies decide to do the work on their own without the help of a professional. The right way to go depends on too many factor to have a straight and universal answer.

There are many software solutions that you could use in order to make the most out of the process without having to pay extra for the professionals that deal with this. However, if the company is growing you should consider it a necessary expense.

Tax forms

There are a few simple forms you’ll need to fill in and some information you’ll need to provide to the government in order to finish this process and to pay your taxes. These forms include:

Schedule C
Schedule C Instructions
Schedule SE for self-employment tax
Schedule SE instructions

The information you’ll need to give is also extensive and it includes:

-The amount of inventory you have, and the inventory you have sold
-Information about all the tax deductions you have the right to
-Information on purchasing important business assets
-Information on how your home is used for business purposes if it is

Self-employment taxes

Most of the taxes that you have to pay are on the income of your employees and the insurance that’s connected with their employment. That’s all the case when your company has you as the employee as well and it needs to be covered in the same fashion.

This includes the expenses related to Social security and Medicare which are the two biggest expenses the employer has. These are about your monthly salary and not the other ways you may earn an income as an owner.

Estimated tax

There are cases in which you’re not able to report your taxes on a regular basis since you can’t estimate the income you’ll make. That’s where an estimated tax amount is paid. This is the case with many small business owners that don’t earn a salary of their own.

Estimated taxes are due quarterly: April 15, July 15, October 15, and January 15 of the following year.  The estimation is made based on the size of the business and based on your previous tax return if there are any. It may also lead to the owner having to correct the amount and pay what they owe or get a refund.

Schedule C

Schedule C is the document that’s used to pay personal taxes when a business owner has two different income sources. One of them is their personal income and the second is the income coming from the business itself.

Your business net income on Schedule C (Line 31) is added to your personal income tax return on Line 12. Any tax credits or other business adjustments you are qualified to receive are added in the Adjusted Gross Income section, including half of your self-employment tax liability (Line 27). It can be filled online.

Conclusion

An income tax is the tax that your business pays on its income. This is done on yearly basis and there are clear and precise dates to deal with. In many cases the business owner run a company as a side project while receiving personal income from other sources as well. The income made from the business is thus added to their personal income in terms of the return.

Beside the income, a business owner needs to pay the insurance and the taxes related to their income made from a salary earned as an employee of the business they run.