Paying your taxes once a year by April 15 is fine, when you work for someone else. However, this date is just one of many tax deadlines you must meet when you own a business. The types of taxes that the Internal Revenue Service (IRS) and your state government expects you to pay depends on the way you have structured your business. One example is whether you have official employees or you rely primarily on independent contractors to help manage your workload. We typically recommend that business owners familiarize themselves with the five types of taxes outlined below.
Quarterly Estimated Taxes
If you operate as a shareholder, partner of an S corporation, or as a sole proprietor, you must make estimated tax payments on your personal income to the IRS and your state government four times each year. The only exception is that you don’t have to pay state taxes on your income if you operate your business in one of these states:
- South Dakota
This requirement applies to sole proprietors who would expect to owe more than $1,000 with next year’s tax return or shareholders or partners of S corporations who would owe more than $500. The tax deadlines for 2019 estimated payments are April 15, June 17, September 16, and January 15, 2020.
Self-Employment Taxes for Social Security and Medicare
As a business owner or sole proprietor, you are both employer and employee in the eyes of the IRS. That means you must pay the full amount for social security and Medicare that employers and employees normally split. You should include this amount with the amount you intend to put towards your federal taxes with each quarterly estimated tax payment.
It is not necessary to file an annual tax return for your business unless you operate as a partnership. This is because all profit and loss passes through the partners and each must report these figures when they file their personal tax return.
Taxes Withheld from Employee Paychecks
If you have employees on your payroll, you need to deduct federal, state, Medicare, and social security from each of their paychecks and remit it by the tax deadlines to the appropriate agency. As an employer, you pay 6.2 percent of each employee’s total paycheck for social security and 1.45 percent for Medicare. The employee will pay the same amount. Additionally, you need to contribute to the unemployment and workers’ compensation funds from the net proceeds of your business. You also need to file a quarterly report with your payroll taxes.
You don’t need to withhold any taxes from money paid to independent contractors. However, you should provide them with a Misc-1099 form if they earned over $600 in one year so they can report it on their own tax return.
Fortunately, most small business owners don’t have to pay excise taxes. The IRS only enforces excise taxes on companies that sell or manufacture specific products. You can review this IRS publication to determine if excise taxes affect your company.
Please don’t hesitate to contact us if you would like more in-depth tax advice. BizResults.com is about execution, getting things done, moving the needle, helping the business owner succeed. It’s always exciting to learn about the solutions and challenges business owners are facing daily, and to see how we can work together. We’d love to meet with you and hear your story.