Small Business Taxes
According to the U.S. Census Bureau, there are almost 28 million small businesses in the United States. Over 22 million of the 28 million is made up of self-employed workers with no additional employees. As a result, more than 50 percent of the population works in a small business. One of the major responsibilities that most small businesses don't anticipate is the process of filing small business taxes. Here's what you need to know about those taxes.
Determine your business entity form
Even if you're making and selling jewelry from your home, the U.S. Small Business Administration claims you need to officially establish what kind of business entity you're running. This includes designations such as sole proprietorship, partnership or LLC. Your choice determines your income tax form.
On each form, you may encounter four basic kinds of small business taxes: income tax, self-employment tax, taxes for employers, and excise taxes. State taxes are also dependent on your designated business entity. Consider talking to a tax professional in our tax offices to decide which designation is most economically-efficient for you.
Apply for a Federal Business Tax ID
Also known as an Employer Identification Number (EIN), a Federal Business Tax ID is used to identify a business entity. You can apply for an EIN through the Internal Revenue Service's official website. Processing takes between one and two weeks. In some states, you'll need to apply for a state EIN in order to pay the state small business tax.
When and what to pay
In the tax preparation business, small businesses are usually advised to pay estimated taxes every quarter. Unlike traditional workers, small businesses that identify as self-employed are required to pay a self-employment tax (SE tax). The SE tax covers Social Security and Medicare for self-employed individuals.
Our tax professionals at H&R Block have extensive experience working with small business, and are quite familiar with the quarterly filing process. To get a head start, call one of our representatives today.