Small Business Taxes

Running your own business offers greater independence, but it also comes with added responsibilities, including managing and paying business taxes. The taxes you file depend on whether your business operates as a sole proprietorship or is structured as a corporation. Many business owners find professional tax assistance to be a worthwhile investment.

Consider working with a financial advisor to align tax strategies, manage assets and maximize income.

Small Business Tax Obligations

Unfortunately, small business taxes are more complicated than individual income taxes. There is no single “small business tax rate.” Instead, there are different tax regimes based on the type of business you have and how much it takes in.

If you’re deciding whether and how to incorporate your business you’ll want to take taxes into account. For example, C corporations and S corporations are taxed differently. C corporations file their own, separate tax returns using corporate tax rates. S corporations filter business income through the personal income of the business owner or owners. The IRS assesses S corporation tax liability based on the federal income tax rates for individuals. Sole proprietorships, partnerships and LLCs are taxed in the same way as S corporations.

Whatever the status of your small business, some of your tax-filing steps will be the same. To pay your small business taxes you’ll need your Employer Identification Number (EIN) and records of business income and expenses. You can file your business taxes online or use the services of a certified public accountant or tax lawyer.

As a small business owner, many of your tax obligations are pay-as-you-go. You should have been withholding payroll taxes for yourself and your employees throughout the year. That includes federal income taxes, Social Security and Medicare taxes, as well as Federal Unemployment Tax Act (FUTA) taxes.

Small Business Tax Deductions

A small business owner filling the case in her bakery with pastries.

The government offers a range of tax deductions to small business owners and the self-employed. These small business tax deductions can save you big bucks, so it’s important to make sure you claim all the deductions you’re eligible to claim.

Remember that you can write off a range of business expenses at tax time. Think business equipment, business travel and accommodations, furniture and office supplies. You can also deduct the premiums you pay for health insurance coverage for yourself if you’re self-employed and don’t have access to health insurance through your spouse.

Good small business tax preparation, whether it’s done using software like TurboTax or TaxSlayer or with the help of an accountant, can empower you to find the best small business tax breaks. A small business tax calculator can help you estimate how much you’ll owe to the IRS. If your tax bill from last year seemed high, you may not have been getting all possible small business tax write-offs.

Small Business Tax Credits

Many small business owners are familiar with tax deductions, but fewer realize that tax credits may also be available. For example, eligible small businesses that offer health insurance to their employees may qualify for the Small Business Health Care Tax Credit, which helps offset premium costs. This credit was established under the Affordable Care Act.

To claim this credit, businesses generally must purchase coverage through the Small Business Health Options Program (SHOP). SHOP functions as a health insurance marketplace, allowing employers to compare plans based on coverage and cost. Self-employed individuals without employees typically do not use SHOP and instead purchase coverage through the individual Health Insurance Marketplace.

Beyond health insurance, a range of business tax credits may be available. These credits often incentivize activities the government considers socially or economically beneficial. Examples include credits for using renewable energy, biodiesel or alternative fuels, as well as a credit of up to $150,000 for employer-provided childcare facilities and services. Other credits, such as the Orphan Drug Credit, encourage pharmaceutical companies to develop treatments for rare diseases. There are also more specialized credits that apply to specific industries or activities.

Bottom Line

A couple reviewing their small business's revenue.

The best way to prepare for tax season is to keep good records throughout the year. When you’re a small business owner, keeping clear, organized and detailed “books” should be a high priority. Even if you don’t have time to read up on “small business taxes for dummies” before tax season, having an accurate record of your business income and expenses will make tax season go much more smoothly.

Tax accountants and tax software work best when you can give them the inputs they need. Think of it this way: the better your records the more easily you can claim those deductions and credits. And if you need additional help, don’t hesitate to speak with a professional. A financial advisor with tax expertise can be a valuable resource throughout the year, and especially at tax time.

Tips for Managing Other Small Business Needs

Hiring a financial advisor to help manage your financial assets, retirement, and insurance, and maximize income can be a worthwhile investment for you and your small business. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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