10 Common Small Business Tax Questions Owners Are Asking

As a small business owner, you'll have questions about your business, business procedures, and taxes. You may have entity-specific or business tax questions, making receiving the correct answers urgently.

When tax season arrives, small business owners will have questions but only a little time to receive proper answers, assistance, and next steps. Here are answers to small business tax questions that small business owners are asking.

Top 10 Small Business Tax Questions

Here are the top 10 questions and answers to common tax questions that small business owners have:

1. Can I Use Scanned Copies of Receipts for Tax Purposes? 

Scanned copies of receipts are okay to save and submit for tax purposes, and the IRS allows this as long as your receipts are identical to the original receipts. Your scanned receipts should also contain identical information to your original copies.

If you experience a tax audit but have scanned copies of your receipts, you'll want to save these records. With an audit, the IRS may require you to submit paper copies of your scanned receipts.

2. How Do Taxes Work with a Small Business?

Small businesses will file and pay their taxes based on their business entity. Businesses can choose their tax year when they file taxes for the first time.

Federally:

Corporations pay income tax on their profits, and their shareholders pay personal income tax from the corporation's dividends.

Partnerships and sole proprietorships pay personal income tax and self-employment taxes.

S corporations pay taxes as pass-through entities, and their shareholders pay personal income tax.

Sole proprietors pay both personal taxes and self-employment taxes.

Multiple-member LLCs can elect to pay taxes as a corporation, partnership, or S corp. Single-member LLCs can pay taxes as sole proprietors.

Depending on where you operate your business, your business may also have local and state taxes. If so, you may also have to pay employment taxes and state income taxes.

3. How Much Can a Small Business Make Before Having To Pay Taxes?

A small business's exact amount before paying taxes depends on its entity. Corporations can use Form 1120 to determine how much they'll pay in taxes.

Other business entities, such as LLCs, partnerships, S Corporations, and sole proprietorships, have different considerations for determining their income. These entities require their business owners to report income on their personal income tax returns, which means you'll have both business and nonbusiness income on your tax return.

Independent contractors and sole proprietors will have to pay taxes if they earn $400 or more. 

4. What Business Expenses Can You Claim On Taxes?

The IRS has two requirements for what business owners can claim as their business expenses. 

Business expenses must be both ordinary and necessary. Ordinary expenses are expenses similar businesses or trades commonly pay for, and necessary expenses assist you in doing your business.

You can claim considerable business expenses as tax deductions:

Advertising

Automobile expenses 

Entertainment and meal expenses 

Maintenance and repairs

Home office expenses 

Transportation expenses

5. What Information Does a Small Business Need For Taxes?

Small businesses will need several documents to file their small business taxes. These documents include the following:

Business assets and business expense information

Financial statement

Home office expenses for business owners using their home as their primary business site.

Vehicle use information if you’re seeking a tax deduction for business vehicles.

6. What Is The Easiest Way To Pay Estimated Taxes?

The easiest way to pay estimated taxes is to use the Electronic Federal Tax Payment System (EFTPS). Businesses and individuals can use EFTPS to make estimated tax payments weekly, bi-weekly, monthly, or on a different schedule.

7. What Is The Penalty For Not Paying Quarterly Taxes?

The penalty for not paying quarterly taxes is 0.5% of the amount not paid for each month or part of the month that the quarterly tax remains unpaid. There's a maximum penalty of 25% for not paying quarterly taxes.

8. What Will Trigger an IRS Audit?

Although IRS audits are infrequent, there are red flags that trigger an audit. Small businesses may experience an IRS audit for:

1. Undergoing significant changes in business expenses and business income.
2. Filing an incomplete tax return.
3. File a tax return with errors.
4. Mixing business expenses with personal expenses.
5. Not making a business profit for several years.
6. Not filing a tax return if a business experiences a financial loss.
7. Operating a business that deals with a lot of cash.

9. Which Receipts Can I Claim on My Taxes?

As you collect your business receipts throughout the year, it may become difficult to know which receipts to keep for taxes.

 You can claim receipts related to the following:

Expenses 

Gross receipts 

Purchases

Receipts related to expenses will show costs your business incurs other than purchases. You can claim expense receipts, including:

Account statements

Canceled checks

Cash register tape receipts

Credit card receipts and statements

Invoices

There are additional receipts related to business expenses that you should keep to claim as a tax deduction. The IRS requires you to prove these expenses to claim entertainment, gifts, transportation, and travel. 

Gross receipts are another receipt type you can claim on your taxes. You can claim gross receipts, including:

Cash register tapes

Deposit information 

Form 1099-MISC

Receipt books

Invoices

Purchases are the last receipt type that you can claim on taxes. You may use information from your purchases to claim credits or deductions on your tax return from: 

Canceled checks

Cash register tape receipts 

Credit card receipts and statements

Invoices

10. Who Has To Pay Quarterly Taxes?

There are three groups of people who have to make quarterly tax payments: 

1. Corporations
2. People without enough tax withheld 
3. Self-employed workers

Corporations may need to pay quarterly taxes if they expect to owe at least $500.

Second, if you need more taxes withheld, you should make quarterly tax payments. There are two criteria the IRS has for who needs to pay quarterly taxes for those not withholding enough taxes, and you'll need to meet both requirements to pay quarterly taxes in this group.

The first criterion is that you'll owe at least $1,000 in federal taxes after adding your tax credits and withholding. The second criterion is that your refundable credits and withholding cover the following:

Less than 90% of your tax liability for the current year

100% of your liability for last year

110% for taxpayers with an adjusted gross income of $150,000 for taxpayers filing individually, or $75,000 for taxpayers who are married and filing jointly

Third, self-employed workers, including freelancers and independent contractors, should pay their quarterly taxes if they owe $1,000 or more in taxes.

Work with Expert Accountants To Help Navigate Small Business Taxes  

Small business taxes encompass different requirements for different entities. Federal, local, and state tax requirements and multiple business entities make it critical to get your small business questions answered.
When you need to answer small business tax questions, it's best to work with experts. Work with the expert accountants at 1-800Accountant for your small business tax needs.