NP Business Tip: Business Taxes- An Overview

Twenty years ago, when I started my business, I learned the hard way that I had to pay business taxes in the form of quarterly federal and state taxes. My ignorance had put me in a financial bind. I had to come up with a big chunk of money, which included taxes, late fees and penalties. Don't let this happen to you!

What follows is a general overview of the taxes most small businesses (general non corporations) are required to pay and the reports that need to be filed. The first quarter of every year, January in particular, tends to be a heavy tax month for most businesses.

For the sake of simplicity, let's group taxes related to our small business/practice into two broad categories: income and employment taxes.

Income taxes include personal income (as related to income from your business) and business income taxes.

Personal taxes, of course, need to be filed and paid by April 15th of each year. However, since nobody is withholding taxes for you (the business owner), you are required to pay taxes as you go. You do this in the form of paying estimated taxes (ES), also known as paying quarterly or self-employment taxes.

These quarterly tax payments are due in January, April (yes, April 15th!), June and September (specific days vary from year to year). Make sure to mail in your payment along with a 1040-ES payment coupon.

Business taxes may be due at different times throughout the year, depending on specific state requirements. Washington State, for example, collects Business & Occupation Tax and City Tax around the same time federal quarterly taxes are due. Our county collects business property taxes (such as exam tables, computers, etc) once per year.

Employment taxes consist of taxes you pay in part and collect on behalf of your employees. These taxes include federal withholding, social security, Medicare, unemployment and workers compensation. Employment taxes commonly are a mix of federal and state withholdings.

Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, is due in January of each year; it reports the amount of federal unemployment paid for employees.

Form 941, Employer's Federal Tax Return, is due quarterly and reports payroll taxes withheld for the quarter.

Keep in mind, that the above forms are often filed at different times than the actual tax payments!

By now your head should be spinning - I know mine is! The good news is that you can hire somebody qualified to do all of that for you. However, it is a good idea for any business owner to know what needs to happen in this part of the business. Because remember, the ultimate responsibility for correct and timely payment and filing rests with the business owner - You!

NPBOTM Action Steps:

1. Set money aside throughout the year specifically for taxes. You do not want to be caught short.
2. Compile a list of taxes due for your location and structure.
3. List dates for filing, tax payment due dates.
4. Consult with a qualified bookkeeper and tax specialist.
5. Further information and forms can be found at www.irs.gov

© 2010, Johanna Hofmann, MBA. All Rights Reserved.

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