Filing taxes as a small business owner can be daunting. Not only do you have to file individual and corporate taxes, but you also might have to file payroll, unemployment, excise taxes and more.
It’s not easy to make sense of which forms you have to file and which taxes you need to pay. To help you with this, here’s an overview of the taxes small business owners need to know about and how they report them.
If you run your business as a sole proprietorship or have no employees, you must make sure to pay your self-employment taxes quarterly. This includes the tax that employers must pay for Social Security and Medicare. However, for the most part, you only have to pay self-employment taxes on net earnings of more than $400.
No matter your business structure, you will need to file an annual federal tax return of some kind for your business income. Learn more about business structure tax benefits and risks in our guides on choosing between sole proprietorships and LLCs and between C and S corporations.
- Form 1040: Sole proprietorships and single-member LLCs can simply file and report business income taxes on their individual tax returns.
- Form 1065: Partnerships
- Form 1120: C corporations
- Form 1120s: S corporations
As a small business owner who pays employees, you are accountable for the following payroll taxes:
- 6.2% Social Security tax on wages up to $118,500 (both employer and employee portions)
- 1.45% Medicare tax (both employer and employee portions)
- 0.9% Additional Medicare Tax on wages over $200,000
You are also responsible for depositing employer and employee taxes with the IRS according to a set schedule. Employees fill out Form W-4 so you know how much to withhold for each one. Follow this IRS guide to familiarize yourself with the different schedules for reporting and depositing your payroll taxes.
If you paid at least $1,500 in wages in a quarter or had at least one employee working for at least 20 weeks in a year, you are most likely responsible for the 6.0% Federal Unemployment (FUTA) Tax. This is only the employer’s responsibility – employees do not pay this tax. Employers are eligible for a credit of up to 5.4% by paying state unemployment taxes.
For certain services and goods, excise taxes apply. For example, alcohol and tobacco are subject to “sin” taxes, and airlines are responsible for transportation taxes. These taxes are usually reported quarterly. Make sure to check with a tax professional if the government requires you to pay any excise taxes.
Some employers must pay their estimated tax burden on a quarterly basis, or they risk penalties and interest payments at the end of the year. Follow this IRS guide to determine if you need to pay quarterly estimated taxes.
Generally, employers must report all employee compensation and the taxes paid to the IRS using these forms:
- Form W-2: Wage and Tax Statement for each employee (e-file to the Social Security Administration here)
- Form 720: Quarterly Federal Excise Tax Return
- Form 940: Annual Federal Unemployment Tax Return
- Form 941: The Employer’s Quarterly Federal Tax Return reports on all the taxes you withhold and pay.
- Form 943: Employer’s Annual Federal Tax Return for Agricultural Employees
- Form 944: The Employer’s Annual Federal Tax Return is only for employers whose annual employment tax liability is $1,000 or less.
You can submit Forms 940, 941 and 944 electronically.
There’s a lot to consider when it comes to filing taxes as a small business owner. This guide only covers your federal taxes, so you might need to consult a local tax lawyer to ensure you file any local and state taxes correctly. But hopefully this gives you a good place to start to make tax season a little less stressful.