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:
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:
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.
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:
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
Business Tax Credits
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.
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
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.
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:
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.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.