Tax Season Considerations for Business Owners
We are moving quickly into tax season. This year, the IRS has stated that it will be conducting more audits on small business. In light of this, if you are a small business owner, be prepared to file your taxes correctly and to have all records stored away and available in case the IRS chooses to audit you. Here is some information that may be useful as you prepare to file your taxes this season.
First, as a business owner, you must determine what type of business entity you have created. Take a look at the chart below to determine what characteristics best describe your business.
What type of business entity do you own?
Below is a chart created by the IRS to assure that business owners are filing the appropriate tax forms corresponding to their business entity
What are Income Taxes:
All businesses except partnerships must file an annual income tax return. Partnerships file an information return (a tax document used to report income, gain, losses, deductions, etc.) The federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year. An employee usually has income tax withheld from his or her pay. If you do not pay your tax through withholding or do not pay enough tax that way, you might have to pay estimated tax.
What are self-employment taxes?
You qualify for self-employment taxes if you own a sole proprietorship or conduct business as an independent contractor. Self employment taxes only refer to Social Security and Medicare taxes for individuals who work for themselves. It is equivalent to the Social Security and Medicare taxes that are nominally withheld from waged workers paychecks.
What are estimated taxes?
Tax payers that do not choose or do not have the opinion to have their taxes withheld from each paycheck are subject to estimated taxes. Estimated tax would be paid on gross income from self-employment earnings, rental property, dividends, interest and alimony.
Do not include your social security and medicare taxes in these forms. Those particular taxes have their own designated position in self-employment taxes.
What are employment taxes?
Employment taxes are imposed on employers and not employees. These forms are for business entities to report income taxes, social security taxes, or medicare taxes that the employers choose to withhold from employees’ paychecks.
What are excise taxes?
Excise taxes are only applicable to certain businesses. Companies who sell goods and services like: fual, airlines tickets, trucks, tractor trailers, tires, and tobacco are subject to excise taxes. The excise tax forms are listed below:
Form 22390 (For heavy highway vehicle use)
Form 720 (gas, coal, and other fuels)
Instructions for Form 720 (04/2020) | Internal Revenue Service (irs.gov)
This form is to request a refund on certain fuel sales.
The checklist below is to further assist you with your tax filing needs. Each list is separated by the business entity. Find your business entity, and start checking off boxes today!
If you have questions about business entities or formation feel free to reach out to us. If you have questions about preparing your business return, reach out to your CPA or accountant or build a relationship with a tax or finance professional.
Download this post below.