Starting a business is an exciting process. Those who are part of this adventure know there are many balls to juggle. One of the biggest balls to make sure you do not drop is the one involving taxes.
Tips abound on how to better ensure taxes are taken care of, three of the more helpful follow.
Tip one: Know your tax obligations. There are a number of different types of taxes that can impact a business, depending on the type of business that is conducted. Some of the more common examples include income taxes, self employment tax and employment taxes.
The Small Business Administration (SBA) clarifies in a recent publication that the amount a business will owe in income tax is based on profit. The figure that is used to determine this obligation is calculated by “subtracting your business’s expenses from its income.”
Self employment taxes are those that are generally required for sole proprietors or independent contractors with earnings at or above $400, while employment taxes are those required for entrepreneurs that hire employees. This later tax can include withholdings from employees’ paychecks to cover federal and state income taxes, Social Security and Medicare taxes as well as payments made by the employer to cover unemployment insurance taxes and disability programs.
Tip two: Know what forms you need. The forms required depend on the business structure in use.
Some structures, like sole proprietorships and limited liability companies, may have the taxes taken out of the owner’s individual tax forms. Others, like a C-corporation, are taxed as a separate entity and require their own paperwork.
Tip three: Pay your taxes. It may seem like common sense, but it is important that businesses pay their tax obligations. A failure to do so can lead to steep financial penalties.
Determining your full obligations can be complex. Whether you are trying to figure out the best business entity to use or attempting to figure out your tax obligations, it is wise to seek legal counsel to help better ensure your business interests are protected.