Starting a business is an exciting (and scary) step.
Initially, you were equipped with a vision, some basic business know-how, and a plan. You also likely understood that you had tax obligations (you’re a taxpayer after all).
However… having a general idea and knowing the specifics are two very different things. I’ve seen some Oklahoma City clients over the years who weren’t equipped with a full picture of what small business taxes they were responsible for as business owners. They missed a requirement or didn’t make a system for collecting taxes, and they ended up in debt to Uncle Sam or owing way more than they thought they would.
Unfortunately, the IRS doesn’t care if you know or not. They expect you to know — and they expect you to pay.
So, for the sake of giving the full small-business-taxes picture, I’d like to kickstart a tax basics conversation here and now.
Too little, too late? Maybe… maybe not.
While this may not solve the tax problems you’re facing right now, getting reacquainted with the basics of small business taxes WILL help you get a sense of what you need to do differently or where you need help right now.
You could also pass this on to any of your friends starting out on the business ownership journey, so they don’t end up in the same predicament.
Let’s get started.
The Big 5
First, let’s take a look at the five most important areas of small business taxes you need to be thinking about and preparing for in your Oklahoma City business. (Heck, you should be building a system to make sure you’re taking care of all of them or ask a local accountant to help you do that.)
Income taxes. No matter what business entity you file under, you have to pay income taxes on business profits. How you pay depends on the type of business entity you set up for your filing.
Self-employment tax. If you’re an LLC, sole proprietor, or partner in a partnership, you need to pay Social Security and Medicare taxes. This amount is based on your business’s net income.
Estimated taxes. Basically, the IRS wants you to pay your taxes throughout the year, so you’ll need to make estimated payments four times a year. You’ll need to fill out a special tax form that takes into account both your personal and business income, as well as any self-employment taxes you owe.
Employment Taxes. When you have employees, it’s important to stay on top of a few different taxes. You’re responsible for reporting and depositing federal income tax withholding, Social Security and Medicare taxes (which you and your employees split the cost of), and Federal Unemployment tax.
Sales Tax. In most states, you are responsible for collecting and paying a sales tax on most goods to the state. And if your business is online, you also have to collect and pay sales tax in the states of your respective customers.
Other reporting obligations
Depending on your business, there are a few other small business taxes you may or may not need to take care of.
If you have a brick-and-mortar business, you’ll need to make sure you pay property taxes on it. Depending on the type of good or service your business sells (things like fuel, alcohol, airline tickets, phone services), you may have to pay excise taxes. Gross receipts taxes are required by some states. And if you own a corporation, you’re a shareholder, so if you receive income from dividends, you’ll need to pay a dividends tax.
There’s a good reason businesses get in trouble with the IRS over this stuff. There’s a lot to keep track of.
Here are a few ways to help you stay in front of those tax commitments.
- Keep accurate records of income, expenses, and other financial transactions to ensure you’re able to file accurate tax returns.
- Know the tax deadlines, both for filing returns and for making payments. Late filing or payment often results in penalties and interest charges.
- Know what tax deductions are available to you. One of the perks of business ownership is you can take deductions for expenses such as office rent, supplies, and equipment — as well as credits for things like hiring certain types of employees or investing in certain types of property.
- Make sure you stay compliant with all applicable tax laws and regulations. Any time you fail to comply, you could end up the target of audits, penalties, and legal action (yikes).
- Plan for your tax obligation. You can minimize your tax liability by implementing the right strategies, including accelerating or deferring income and expenses, taking advantage of deductions and credits, and maximizing retirement contributions.
If all of this seems like a lot… that’s because it is. The tax system is complicated and your small business taxes need to be handled with intentional, focused care.
Which brings me to my last business tax basics point:
Why not handle it by hiring a tax professional you trust, that knows the system, and how to deal with the IRS on your behalf? I’m absolutely ready and willing to be your person, but even if it’s not me, I would say this because of what it means for you.
Your plate is full as a business owner. Taking the tax portion off of it frees you up for the other demands (and joys) of running your Oklahoma City business.
But if you do decide to handle these elements on your own, make sure you master these business tax basics.
On your team,