Support Small Businesses Tax Series #1: What Four Federal Taxes Affect Small Business Owners

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SUPPORT SMALL BUSINESS TAX SERIES

Small businesses amazed me even when I was a child back in the good old 80s. I just loved how someone took their destiny in their own hands and started a business. As a child, I didn't know what it took to be a small business owner but I always promised myself that one day I will either become one or help other small businesses. I would be lying to you if I told you that I knew that my destiny was educating small businesses owners about their taxes. Learning about taxes was the absolute last thing that I thought I would do and love. However, life has a funny way of pointing you to the right directions. My goal for the "Support Small Business Tax Series" is to teach small business owner or future owners the basics of staying in compliance with the IRS. It honestly hurts me when I have to represent an small business owner in front of the IRS. Most times the problem could have been avoided if the owner simply knew the basics. We need small businesses to survive in our communities more than ever. I'm not the savior but I'm simply doing my part to help small businesses make it to the next level. Today's post will be about the four federal different taxes that affect most small business owners. Please note that on the state level, sales tax plays a major factor. I promise you that I will dedicate a future post to sales taxes.

Before you start a business, you must know the following federal taxes:

Income taxes - If someone tells you that you are exempt from income taxes then leave their office asap! If you own a for-profit business then you are definitely subject to income taxes. The federal income tax is a pay-as-you-go tax. If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. If you are not required to make estimated tax payments, you may pay any tax due when you file your return.Nothing in taxes are simply so trust me when I say that are thousand of laws, regulations and court decisions that makes this type of taxes extremely complex. I highly recommend to hire an accountant if you are a small business owner. Find other ways to cut corners but don't cut hiring an accountant. Getting in trouble with the IRS can ruin your business and personal net worth.
Self-employment taxes- So you thought you could hide from submitting social security and medicare taxes to the IRS? Nope! You still have to pay into our wonderful government programs just like employees receiving W2s. Generally, your net earnings from self-employment are subject to self-employment tax. If you are self-employed as a sole proprietor or independent contractor, you generally use Schedule C or C-EZ to figure net earnings from self-employment. The self-employment tax rules apply no matter how old you are and even if you are already receiving Social Security or Medicare. As a self-employed individual, you may have to file Estimated Taxes quarterly. You can use these estimated tax payments to pay your self-employment tax.
Employment taxes aka "Payroll taxes" - Please take employment taxes very seriously. If you plan to hire employees, don't mess up the payroll taxes. The IRS will unleash hell on you if you intentionally didn't send the correct payroll taxes. You don't want an IRS letter stating "Trust Fund Recovery Penalty." If that happens, drop whatever you are doing and hire an "qualified" tax accountant asap (like within minutes after receiving the letter)! Employment taxes include the following: Social security and Medicare taxes, Federal income tax withholding and Federal unemployment (FUTA) tax. You will need to submit quarterly and annual payroll tax returns. I will dedicate an entire blog post on the payroll tax return requirements on a later date.
Excise taxes - Excise taxes are taxes paid when purchases are made on a specific good, such as gasoline. Excise taxes are often included in the price of the product. There are also excise taxes on activities, such as on wagering or on highway usage by trucks. Only a few small businesses are subject to excise taxes. If your business is subject to excise, I recommend hiring an accountant before starting your business. Reporting excise taxes can be very complex.