Small Business Tax Guide For Beginners & New Owners (2024)

Starting your own business can be a huge learning curve. With so much to learn, taxes can feel like another challenge added to your list. 

We understand how challenging taxes can be – so we created a small business tax guide for beginners. This guide includes step-by-step instructions for filing your taxes for the first time. 

Follow this guide to stay compliant with your small business tax reporting in 2024.

Beginner’s Guide to Small Business Taxes

Step 1: Sort Out Your Small Business Structure

Your entity type determines how you should calculate and pay small business taxes. Federal tax laws require different filings and taxes for each structure. 

Review the following business entity descriptions to determine your tax return requirements.

Sole Proprietorships

A sole proprietorship is the default entity type for a small business owned by an individual or married couple. You don’t need to file paperwork to set up a sole proprietorship – if you’re self-employed, you’re automatically a sole proprietor.

Federal income tax laws treat sole proprietorships as one with the owner, meaning the business does not file a separate tax return. Instead, the owner must report their business income and deductions on their personal income tax return.

C Corporations

C corporations represent legal entities separate from their owners. C corps must file corporate tax returns to report their business activity and tax liability. C corporations pay tax on business income, and the business owners pay taxes on corporate dividends.

You can establish a C corp by registering the business with your Secretary of State and obtaining an EIN.

S Corporations

Like C corps, S corporations are independent legal entities that must file S corp tax returns. However, S corps represent pass-through entities, which means they do not pay federal income tax. The business owners pay individual income tax on their share of business income.

Partnerships

Partnerships represent pass-through entities with two or more owners. Partnerships must file business tax returns to report income and ownership information. The business owners pay individual income tax on their share of business income. 

Limited Liability Companies (LLCs)

A limited liability company is a pass-through entity that distributes income and deductions to its business owners. Establishing an LLC requires filing a registration with the Secretary of State. 

LLCs can have one or more owners. The number of owners determines the federal tax treatment of the business:

• Single-member LLCs have a single owner and default to sole proprietorship tax treatment.
  
• Multi-member LLCs have two or more owners and default to partnership tax treatment. 

If you’re still deciding on the best business structure, consider partnering with professional CPAs for entity formation advice. 1-800Accountant also offers a budget-friendly EIN registration service to support your small business setup.

Step 2: Get Your Bookkeeping in Order

Support your small business tax compliance with timely, accurate bookkeeping. Bookkeeping solutions help you track profitability and prepare for tax season. 

Bookkeeping professionals perform the following functions:

• Record and categorize transactions: Track receipts and business expenses to monitor cash flow and spending.

• Perform account reconciliations: Ensure accurate records and account balances to support your accounting and budgeting.

• Prepare financial statements: Summarize your quarterly or annual financial activities for debt financing and a smooth tax return process.

Consider outsourcing your bookkeeping to professionals. 1-800Accountant offers affordable services so you can maintain organized and accurate accounting.

Step 3: Calculate Your Small Business Taxes

Depending on your location and operations, your small business may need to pay multiple business taxes. The following list will help you determine which taxes you should pay and how much you’ll owe. 

Federal Income Tax Rates

Every small business must pay federal income tax on their income. Your federal tax rate depends on your business entity structure. 

• C corporations pay a 21% federal income tax on net taxable income.
  
• Sole proprietorships and pass-through entities distribute earnings to their owners. Business owners pay tax at their individual income tax rates. Review the IRS 2024 federal tax brackets to determine your personal tax rate.

State and Local Income Taxes

Most states follow the federal treatment of each business structure. If you own a pass-through entity, your individual state income tax bracket will generally apply to your business earnings. 

State tax rates and rules vary by location, so you should check your state’s laws or consult tax professionals.

Payroll Taxes

Employers must withhold and remit payroll taxes on employee wages. Payroll taxes generally include the following components: 

• Social Security and Medicare taxes: Social Security represents a 12.4% tax on up to $168,600 of employee wages in 2024. The Medicare tax is a 2.9% tax on all employee wages. Employers and employees split the tax burden, so each party pays 6.2% of Social Security and 1.45% of Medicare tax.
  
• Federal Unemployment Tax (FUTA): FUTA is 6% on the first $7,000 of each employee’s wages.
  
• State Unemployment Tax (SUTA): SUTA is the state counterpart to the Federal Unemployment Tax. State Unemployment Tax rates vary.

Self-Employment Taxes

Self-employment tax applies to self-employed taxpayers, such as independent contractors, who do not have payroll taxes withheld on their earnings. Business owners subject to self-employment tax must pay 15.3% of business income. Self-employment tax covers the employer and employee portion of Social Security and Medicare taxes.

Self-employed individuals must submit quarterly estimated tax payments to avoid underpayment penalties.

Sales Tax

Many states and cities impose sales taxes on business transactions such as selling products or merchandise. Tax rates and applicability depend on your business operations and location. We recommend partnering with tax professionals to determine whether you have a sales tax responsibility.

Step 4: Lower Your Income Tax Bill with Deductions and Credits

Business tax deductions and credits reduce the taxes you owe. Many business expenses are deductible on your tax return, regardless of your entity structure. 

The following list includes common deductible business expenses and tax credits for new businesses. Report your business tax deductions on your federal income tax return and use the relevant tax forms to determine your tax credits. 

Business Tax Deductions

• Salaries and benefits paid to employees
• Supplies and office materials used in your daily operations
  
• Commercial rent paid for your office space
  
• Home office expenses incurred by home-based business owners
  
• Insurance premiums for business-related policies
• Startup costs of up to $5,000 incurred to organize your business, subject to IRS qualifications
  
• Travel and vehicle costs incurred for business meetings and events

Business Tax Credits

• Work Opportunity Tax Credit for employers that hire individuals from certain groups, such as qualified veterans (Form 5884)

• Research and development (R&D) credit for qualified research relating to new or improved business development (Form 6765)

Maximize your business tax deductions and credits by partnering with professional CPAs in 2024.

Step 5: Understand Tax Forms for Small Business Owners

Your federal income tax form depends on your business structure. The following list explains the business tax form for each entity type.

• Sole proprietorships and single-member LLCs: Use IRS Form 1040, Schedule C, Profit or Loss from Business (Sole Proprietorship), to report your business taxable income. Include Schedule C with your U.S. Individual Income Tax Return, IRS Form 1040.
  
• C corporations and LLCs with C corp elections: Use IRS Form 1120, U.S. Corporation Income Tax Return, to calculate your business taxable income and tax liability. Business owners must use Form 1040 to report corporate dividends and wages earned.
  
• S corporations and entities with S corp elections: Use IRS Form 1120-S, U.S. Income Tax Return for an S Corporation, to report business income and shareholder distributions. Issue a Schedule K-1 to each member to report allocations of income and deductions.
  
• Partnerships and multi-member LLCs: Use IRS Form 1065, U.S. Return of Partnership Income, to report business income and partner distributions. Issue a Schedule K-1 to each member to report allocations of income and deductions.

State and local tax authorities publish separate income tax forms. We recommend consulting tax professionals for help with your state tax return.

Step 6: File and Pay Your Taxes

File your taxes on time to avoid fines and penalties. Use the following due date list to determine when to file your small business tax return and make tax payments. 

Small Business Tax Return Deadlines

• Partnerships, S corporations, and multi-member LLCs: March 15th
  
• C corporations, sole proprietorships, and single-member LLCs: April 15th

Quarterly Estimated Payment Deadlines 

C corps, self-employed professionals, and business owners must make quarterly estimated tax payments throughout the tax year. Refer to the following quarterly estimate due dates for businesses and individuals.

• First quarter estimated payment: April 15th
  
• Second quarter estimated payment: June 15th
  
• Third quarter estimated payment: September 15th
  
• Fourth quarter estimated payment:
  
  • C corporations: December 15th
    
  • Individuals: January 15th

Don’t let quarterly taxes interrupt your workflow. Let 1-800Accountant support your quarterly estimated payments so you don’t have to worry about missing a due date. 

Penalties for Late Filing

If you miss a return or payment deadline, you could incur penalties and interest on your tax liability. The IRS imposes penalties for infractions such as the following: 

• Failure to pay tax due
  
• Failure to timely file a return with tax due
  
• Underpayment of tax due

Penalties depend on the type of infraction and generally range from 0.5% - 5% of your tax liability. Penalties accumulate each month until paid, up to 25% of the amount you owe. 

File Small Business Taxes for the First Time with Confidence

Small business taxes can feel overwhelming, but you don’t have to manage it alone. 1-800Accountant offers budget-friendly services for small business owners so you can lower your tax bill without costly professional fees. 

Outsource The Hassle Of Business Taxes To 1-800Accountant

Partner with 1-800Accountant for year-round tax advice. Professional CPAs support your business with quarterly estimated payments, tax preparation, and tax advisory services. Schedule a free call to learn how you can save money on taxes.