Individuals mostly concern themselves with federal and state income taxes. But business owners have five basic categories of taxes that might show up on their financial agenda:
- Income taxes. According to the IRS, all businesses except partnerships must file an annual income tax return. Partnerships file an information return. Keep in mind that you also have to file an individual income tax return using IRS Form 1040 every year.
- Estimated taxes. Generally, you have to make quarterly estimated tax payments to cover income tax on income not subject to withholding and self-employment tax. If your estimated payments fall short of the annual tax liability, you may have to pay a penalty.
- Self-employment taxes. This tax is for sole proprietors, general partners, and usually members of limited liability companies, and covers Social Security and Medicare taxes.
- Employment taxes. If you have employees, you must report and deposit federal income tax withholding, Social Security and Medicare (FICA) taxes (your employees pay half and you pay the other half), and Federal Unemployment (FUTA) tax.
- Sales taxes. Businesses may be required to collect these taxes on sales and remit them to their state (and possibly other states in which they do business).
Business taxes can get complicated. Most small business owners rely on a tax professional for guidance on tax strategies and to handle tax filings. The more you know about the tax system and business tax requirements, the better equipped you’ll be to work with your tax pro to take full advantage of the laws.