What every small business owner needs to know about quarterly taxes
This article has been abbreviated. Access the entire article at our Small Business Resources site.
One of the biggest surprises for new business owners often comes in April, after the first year of operations. Upon filing a tax return for the business for the first time, they discover that they owe much more than expected. The reason: a failure to pay estimated taxes quarterly for the year before.
How taxes are different for entrepreneurs
Planning, estimating and paying taxes as a business owner isn’t like being an employee. Generally, as an employee, your employer deducts taxes from your paycheck all year, and you usually pay whatever balance remains when you file or collect a refund if you’ve overpaid. As a business owner, you have to pay estimated taxes after the end of each quarter, generally based on what you made during that three–month stretch.
Missing those quarterly deadlines can prove costly, and the penalties for not paying estimated taxes on time become more severe the more you owe and the longer you go without paying.
Understand the federal taxes you owe
Your business structure will determine what taxes you have to pay. For example, if you’re a sole proprietor or operate through an LLC, your federal quarterly estimated taxes will generally include a self–employment tax. And, if you operate as a C corporation or an LLC taxed as a C corporation, you do not pay a self–employment tax on the salary you pull from the business in a year, but rather pay only the employee portion of Social Security and Medicare taxes (the business pays the employer share). For information on how much you will owe in self–employment tax, see the IRS Self Employment Tax guide. If you have employees, you may also owe the employer taxes, which include Social Security, Medicare taxes and federal unemployment taxes, for those employees.
Understand the state taxes you may owe
Paying federal estimated taxes is just the beginning. You may need to pay quarterly estimated taxes in one or more states. The types of taxes you may owe include state and local income taxes, sales and use taxes, as well as employment taxes, if you have employees.
Know when to seek outside help
As your business grows and becomes more complicated — you add employees, expand your footprint or make capital investments, for example — consider hiring an accountant to handle tax preparation. An accountant can ensure you’re paying your taxes timely and accurately and identify opportunities to optimize tax savings.
Bank of America’s Account Management makes it easy for you to delegate access to your business accounts within Business Advantage 360, our business online banking solution. Access can be delegated to trusted employees, partners and accountants, while maintaining secure control as the account owner. This can be a powerful tool during tax season.
To discuss your business goals, set aside some time for a telephone call with a Small Business Specialist.
MAP3493715 | 03/2021