Tax Tips for Entrepreneurs
Filing for Tax Time
Written by Brenda Stokes for Gaebler Ventures
Filing business taxes can seem like a daunting task, especially when you have to pay taxes. So how do you file your business taxes and survive?
Filing business taxes is very important because you are legally obligated to do so. If you owe tax, you have to pay it to the IRS and most business do have to pay. The good news, however, is that there are ways to lessen the tax burden, ways to make the process smoother, and you can make the task of business taxes easier.
First, the form of business you have will determine the type of taxes you have to pay. For instance, all businesses except partnerships must file an annual income tax return. Partnerships file what is called an information return. Income tax is "pay as you go," which is taken out of an employee's paycheck. If you do not take enough or do not pay tax in this way, you will need to pay what is called "estimated tax."
Estimated tax can be paid on income tax, self-employment taxes, or if you prefer to make regular payments throughout the year. If you overpay, your business will get the overpaid amount back.
Those who work for themselves must pay self-employment tax, which is Medicare and social security for individuals who are self-employed. It is important to pay into these very important accounts because that is where your retirement benefits come from when you retire.
When you have others who work for you, there are a number of tax responsibilities that you have. Your employment taxes include federal income tax withholding, social security and Medicare taxes, and federal unemployment tax.
Excise tax is tax that you pay if you manufacture or sell specific products, receive payment for specific services, use certain types of equipment or products, or operate a qualifying business. Communication and air transportation, fuel taxes, tax on the retail sale of heavy machinery, and environmental taxes fall under this category.
This is, perhaps, the most difficult tax that you would have to file. That's if you have to file it. Most businesses don't have to deal with excise tax, while others have to deal with it extensively.
State tax is another form of tax you'll have to pay. Filing state tax is easier than filing federal tax for the fact that the data used to file your federal return is used on your state return to determine how much you owe. The main difference is that the percentage you pay the state is different than the percentage you pay at the federal level.
In the end, some businesses have to pay taxes that others don't depending on the type of business it is. For most, taxes are rather cut and dry. You keep track of your sales, purchases, and other business expenses. Basically, you need to keep track of every financial aspect of your business to make filing your taxes as easy as possible.
If you find that you owe taxes, you simply pay them along with your return. As a business, you should set aside money to pay your taxes. If you don't, you can create an agreement with the IRS to pay those taxes, but this is not favorable.
You may also decide to take the estimated tax option and go ahead and pay money toward your taxes each month. By doing this, you can reduce your liability or the IRS may owe you money back.
Brenda is a graduate of California State University and a professional writer covering a variety of business topics. To learn more about Brenda, check out her website at The Digital Inkwell.
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