Are you familiar with the different tax obligations you have as a self-employed business owner?
As the owner of your business your tax obligations fall directly on you. Being familiar with the taxes you may owe allows you to be prepared throughout the year when tax payments are due. From determining your cash flow to budgeting, your tax obligations require your attention.
Let’s look at the most common taxes your business will be required to pay:
Federal Income Tax
As your business grows and you become profitable, the profit is included in your taxable income at tax time.
This is why your bookkeeping practices are important. Maintaining accurate monthly income statements allows you to calculate taxes that may be due when paying your estimated taxes throughout the year.
As the owner and employee of your business, you will be responsible for the full amount of your Social Security and Medicare taxes.
Your profit will determine how much tax is due when filing your annual tax return. You will pay estimated taxes throughout the year along with the federal tax amount that is due.
State Income Tax
Paying state income tax is contingent on where you live and what states you do business in.
Not all states have a state income tax, but for those states that do, you will make estimated tax payments to your state of residence throughout the year.
Depending upon the type of business you have, you may owe state income taxes to other states too. Your tax accountant will be able to help you determine if you need to register your business with the states you are doing business in.
When selling physical products, you may be required to collect sales tax on your sales. You may also be required to register with other states and localities to collect and remit sales tax to them.
Internet sales work a little differently than brick and mortar sales when it comes to sales tax. Check with your tax accountant to ensure that you are registered properly with your resident state and other states that you may be doing business in.
Many states will assess property tax on your fixtures and furniture if you have a brick-and-mortar business. You are required to report the value of your office fixtures and furniture, less depreciation, and will be assessed based on the rate your locality charges.
You may owe vehicle property tax on your business vehicles if your locality assesses such taxes.
When your business owns buildings and land, you will be assessed property tax in most states.
When you hire employees, your business is responsible for various employment taxes.
- FICA taxes on gross pay
- State Unemployment tax – if this applies to your state
- Federal Unemployment tax
Taxes are due at various times throughout the year.
- Federal | Self-Employment | State income taxes are due as follows:
April 15 | June 15 | September 15 | January 15
You will be assessed a penalty on your annual tax return if you miss a payment that was due.
- Sales Tax: Your state agency will determine your filing status. You may owe monthly, quarterly, or annually.
- Property Tax: Most states require an annual filing
- Employment Tax: Normally the 15th following the close of the previous month. This is contingent on the amount of taxes withheld.
It is important for you to understand that your tax obligations are just that – an obligation. When you collect sales tax or employment tax, you are holding fiduciary funds that are not yours to spend.
As you develop your cash projections for the year, remember to factor in your tax obligations on your profit. Set up a system to set these funds aside so you can pay them when required.
Keeping up with your tax obligations is critical, and the only way to know what you owe is to have accurate bookkeeping records.
Do you currently know your tax obligations for this tax year?
Keeping your records and bookwork up to date is as important as making a sale. Without good books, you cannot know how well your business is doing. Contact me to schedule your complimentary no-obligation discussion about your small business bookkeeping needs today.