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Unbiased Financial Information Provided by Financial Finesse

What's more American than owning your own business? Taxes, maybe. While you're taking advantage of our system of free enterprise, be sure to keep your eye on your tax obligations. Here are some tax matters every small business owner has to tackle:

Deductions: You can reduce your taxes by deducting most of what you spend conducting business. The IRS allows you to "write off" all the "ordinary and necessary" expenses from your gross income. Examples of such expenses include the obvious:

 

  • Salaries and other compensation (within reason)
  • Business-related travel expenses
  • Rentals
  • Purchases financed by business loans or credit cards

 

Employee Taxes: Whether you have one employee or one hundred, you are responsible for collecting and withholding taxes on salaries and wages. These include FICA taxes for Social Security (6.2 percent for the employee and 6.2 percent for the employer on the first $127,200 of compensation in 2017; 12.4 percent for self-employed individuals), Medicare (1.45 percent of total compensation for both the employer and employee; 2.9 percent for self-employed individuals), and federal and state income taxes. There may be other payroll expenses as well, such as workers' compensation and unemployment insurance. In addition, the IRS generally requires you to send a 1099 form to any non-employee worker who has received $600 or more from you during the year.

Quarterly Estimated Taxes: Estimated tax payments for the 2017 tax year are due on April 18, June 15, and September 15, 2017 and January 15, 2018. If you underpay one or more installments, an interest penalty applies until the day you catch up. All payments should be accompanied by Form 1040-ES, which you can download at www.irs.gov.

Sales Taxes: In most states and in many cities you must collect sales taxes. In some states, sales taxes apply only to products, while in other states services are taxed as well. If you sell a product, the safest route is to register with your state's tax department.

Bookkeeping and Records: Accurate records not only help you run your business successfully, they're crucial if you ever face an IRS audit. At minimum, you should keep:

 

  • All tax returns, invoices and canceled checks
  • Credit requests and loan approvals
  • All incorporation documents filed with the federal and state government

 

Here are some other tips for keeping your records straight:

Separate your business and personal finances.

 

  • Keep separate checking accounts, transferring money to your personal account when you need to. Maintaining separate accounts will help you keep accurate records for tax purposes. The same idea applies to credit cards.
  • Use appointment books and calendars to keep track of business mileage, telephone expenses, and business trips.
  • File receipts and canceled checks. Having receipts and canceled checks handy is crucial if you have to go through an audit.

 

As if business owners didn't have a million other things to think about, there are always the taxes to deal with. By all means, enjoy the freedom and exhilaration of being an entrepreneur -- but don't forget your responsibility to Uncle Sam.


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