When it comes to starting a business, it may seem like the business consumes you at first. Small-business owner taxes make it even more overwhelming. But there are many advantages to being a small-business owner.
According to the IRS, the following key points are vital to learn and maintain.
- Remember that the income coming from your business isn’t necessarily the only income the IRS cares about. Self-employment income can include pay that you receive for part-time work you do from home. This could include income earned in addition to compensation from your small business.
- Small business owner taxes are calculated and reported by filing either a Schedule C, Schedule K-1, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business, with their Form 1040.
- If your company is a sole proprietorship or partnership, or you’re otherwise not paying yourself a salary via a W2 paycheck issued by a payroll company, then your small business owner taxes will include self-employment tax as well as income tax. Self-employment tax includes what would normally be the employer share of Social Security and Medicare taxes. You figure this tax using Schedule SE, Self Employment Tax.
- Most small business owner taxes require making quarterly estimated tax payments. People typically make estimated tax payments to pay taxes on income that is not subject to withholding. If you do not make estimated tax payments, you may have to pay a penalty when you file your income tax return. The underpayment of estimated tax penalty applies if you do not pay enough taxes during the year.
- When you file your tax return, you can deduct some business expenses for the costs you paid to run your trade or business. You can deduct most business expenses in full, but some costs must be “capitalized.” This means you can deduct a portion of the expense each year over a period of years.
- You may deduct only the costs that are both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business.
For more information, visit the Small Business and Self Employed Tax Center on the IRS website. There are three IRS publications that will also help you. See Publications 334, Tax Guide for Small Business; 535, Business Expenses; and 505, Tax Withholding and Estimated Tax. All tax forms and publications are available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).
By Justin E. Crawford