Small business taxes for beginners

Small business taxes for beginners

Jessica Crosby
By Jessica Crosby
Mar 1, 2024
15 min read
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Filing small business taxes as a new business owner can be a shock if you didn’t plan to pay those expenses.

There are many nuances to filing taxes for a small business, and you should consult a tax professional for your unique circumstances. But this guide for filing small business taxes can help you get started.

Jump ahead to learn:

How to do taxes for a small business 

The goal for your small business taxes is to know what you owe, minimize it through deductions and not to overpay. Tax returns are just the government returning your money to you, after all.

Many small business owners have to strategically save for taxes throughout the year. If you understand your tax liability, this provides a better estimate for when you file and pay your taxes.

Develop a system for financial record keeping

The key to minimizing tax expenses is to develop a system for keeping financial records. Not only will you know how you spend your money, but it will help you prepare your small business taxes and deductions more effectively.

No matter what system you use — paper ledger, bookkeeping software or professional accountant — consider keeping your personal and business accounts separate. It’s easier to understand your business income and expenses, and you can better protect your personal finances.

Be sure to file all business tax forms

Every small business must pay taxes, but not all small business taxes are the same. These are the five types of business taxes you may have to pay when you file your small business taxes:

  1. Income tax: You have to pay tax on your business’s income, but how you do this will vary based on the business entity you choose to operate. 
  2. Estimated tax: Estimated tax is a combination of income and self-employment tax. 
  3. Self-employment tax: Many self-employed small business owners don’t pay Social Security and Medicare tax through withholding. Instead, they pay this tax through self-employment tax. 
  4. Employment tax: There are additional taxes related to having employees.
  5. Excise tax: certain kinds of services and goods require an additional tax. For example, you may have to pay an excise tax on fuel if you operate a trucking company. 

Learn how to file self-employment taxes step by step.

How much does a small business pay in taxes?

Before you can calculate your tax liability, you have to work from your gross taxable income. 

This equation calculates gross taxable income:

Total Income – Deductions – Tax credits = Gross Taxable Income

You take your gross taxable income and apply the federal tax rate for your business entity. This is what you pay in taxes.

Choose a business structure before you file small business taxes

You decide on a legal business structure when you form a business. And each type of business entity has its own tax rules. These include:

  • Sole proprietorship: A single business owner is the business’s sole owner, and the income is owned by this person. 
  • Partnerships: Partnerships are “pass-through” entities. This means your share of the business income passes through to your personal tax returns. 
  • Limited liability corporation (LLC): LLCs share the tax characteristics of a sole proprietorship if there is a single owner or a partnership if there is more than one owner. 
  • Corporations: Corporations pay taxes as a business. So your business pays taxes on its income. (There are some variations between S-corps and C-corps.)

Get help to choose which business structure is right for your small business.

Check the tax calculator for small businesses

The IRS recommends you use Form 1040-ES to help calculate and estimate taxes if you’re self-employed or run a small business. There’s an alternative form for non-resident aliens to use called Form 1040-ES(NR).

Find your tax rate if you’re a sole proprietor, partnership, LLC or S corp

If you classify your business as a sole proprietor, partnership or LLC, then the IRS classifies your business as a pass-through entity. This means that your income passes through your business and is lumped in with your personal income. You’re adding your business income to your personal income, so you follow the personal tax brackets.

Tax rates and standard deductions for single filers and those filing jointly can change every year. Check with the IRS to see the parameters for this year.

If you’re a C-corp, find your tax rate

Under the Tax Cuts and Jobs Act, taxes for C-corporations have been simplified with a flat tax rate of 21%. So at any income level, your C corp pays 21% of its income in taxes. 

If you’re a small business owner who classifies your business as a C corp, your business will have to pay the 21% tax rate on its income, and you will also have to pay taxes on the dividends you receive from your C-corp in your personal taxes.

Estimate 1099 independent contractor or freelancer taxes

Some companies hire contract workers or freelancers as 1099 employees. The IRS often classifies you as a sole proprietor if you have not formally established a business entity. 

Learn how to file taxes as a 1099 independent contractor.

When are small business taxes due?

There is a big learning curve, but once you understand the deadlines you can replicate it in future years. Tips for streamlined business taxes include:

Add tax dates and deadlines to your calendar

Sometimes it can be simpler to work backward through your small business taxes. You can use tax deadlines to understand different tax requirements.

Here are some critical dates to know:

  • The federal income tax deadline, a.k.a. Tax Day is usually on or around April 15th. This date applies to self-employed individuals, independent contractors and gig workers. 
  • Federal income tax deadline for partnerships, LLCs or S-corps is usually on or around March 15th. Note that this date usually falls before Tax Day.
  • Some business owners make quarterly tax payments. The dates for these payments are usually around the 15th of April, June, September and then January of the following year.

Read our guide to specific tax dates for this year.

Determine state small business tax obligations

Each state has its own state tax obligations and guidelines. Check with your state agency or meet with a tax professional to understand what’s required where you do business.

Read more tips for filing small business taxes for the first time.

Quarterly small business tax payments vs. annual

You have to pay taxes yearly for your small business, but you get to decide whether to do it all at once or make smaller quarterly payments.

Paying your taxes annually can be difficult for small business owners and self-employed individuals. You have to set aside an estimated amount of money for your tax return.

The amount can sometimes be larger than expected. It can hit you hard if you don’t account for typical items that are withheld on a traditional paycheck, like Medicare and Social Security. 

The IRS recommends that most self-employed workers pay their taxes quarterly. You generate an estimate using Form 1040-ES and pay the IRS as you go. Doing this helps you avoid penalties for not saving enough of your annual earnings.

Many small business owners will need to estimate their taxes to make quarterly tax payments throughout the year. Look at your past earnings to gauge what your future earnings will be so that you can make estimated payments.

Read more about self-employed tax withholding.

Estimated tax deadlines

How to take business tax deductions

A deduction allows you to subtract from your taxable income so that you owe a smaller amount of taxes to the IRS.

There are many relevant deductions for self-employed people and small businesses. An experienced tax professional can help you maximize deductions and plan for future tax years.

Read more about reducing taxable income and tax-saving strategies for business owners.

common self employment tax deductions

What documents are needed for small business taxes?

If you did the prep work, filing your small business taxes can be a breeze. The paperwork you’ll need to file includes:

The correct tax forms 

Depending on how you file your taxes — paper forms, tax software or through a tax professional — you’ll need the right documents.

  • Download small business tax forms from the IRS website. 
  • Auto-populate your information onto tax forms using your tax software.
  • See a tax professional who can guide you or fill out the right forms on your behalf.

An EIN

An Employer Identification Number (EIN) identifies your business entity. If you don’t already have an EIN from when you established your business, you will need one to put on your tax forms. You can apply for a free EIN through the IRS.

How NEXT helps support small business owners

NEXT makes it fast, easy and affordable to protect your small business — and you can do it all online.

We’ll ask a few questions about your business and give you a quote. You can select your coverage options and purchase your policy — all in about 10 minutes. Your certificate of insurance will be available immediately, and you can access your policy 24/7 via web or mobile app.

If you have questions, our licensed, U.S.-based insurance professionals are available to help.

Start a free quote with NEXT.

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Jessica Crosby
About the author

Jessica spent over a decade working in education before moving into content marketing. She has worked on content marketing campaigns in the edtech, real estate, and personal finance sectors. She has a passion for working with companies that take the time to educate their customers. When she’s not working, she’s probably outside with her two kids.

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