IRS Expectations for Small Business Taxes

It's a fact: Anyone who works in the United States must pay taxes. As a small business owner, it is important for you to understand small business taxes. Paying taxes unavoidable - to fail to do so is illegal and may result in steep fines, penalties, and even jail time. The biggest problem in figuring when and how much you need to pay is that it tends to vary depending on a number of factors so large, that there are individuals and professionals out there paid only to keep track of these requirements. Some of these requirements change frequently. One major factor in determining how you pay taxes and file for tax returns is the structure of your small business.

This is very important:  The only three organizations that can offer you advice about small business taxes or about what is required of your business are your attorney, your CPA, and the IRS.  There are many resources online for advice and information about filing your small business tax returns; however the final decisions on what you should do should always be influenced and/or approved by one of those three to ensure that you file correctly and do not face fines, delays or even audits.

Your business structure is one of the most important parts in determining how you file taxes, but it can be broken down in to two different sections by answering one simple question: Are you incorporated?
If not, you are personally liable for your small business - including the small business taxes. It's quick and easy to handle the small business taxes for a sole proprietorship: Your small business taxes are simply your own. There are no separate taxes for your small business, as you are the one liable for it and the taxes incurred are on money that is going directly to you. It is, in essence, taxable income, just like a paycheck from an employer. You are responsible for making sure all small business taxes are paid and filing a tax return every year to ensure your small business taxes were paid in full. You can be held responsible if small business taxes are not paid or you fail to file a tax return.

General Partnerships can get a little bit more complicated - by default, you and your partner(s) share liability for all business matters. This includes taxes. You will want to ensure that your partnership agreement covers the issues of small business taxes so that you aren't surprised by an audit on you or your business when it turns out that your partner has been practicing poor bookkeeping.

A corporation has things much easier in some ways, and much more difficult in others. By far, the greatest advantage of incorporating is that it eliminates personal liability for the small business - including the small business taxes. Your small business is responsible for paying its small business taxes, not you, so if there is a problem in the process, the small business will be held responsible, not you. You are still responsible for your own personal income, but it is separate from your small business. If your small business receives an audit, it is only the small business, not the small business owner(s). However, there are problems and burdens that come with incorporating that you must be prepared to handle. It includes a much wider range of taxable items, typically more expensive small business taxes and more opportunities for deductions. In addition, filing your small business tax returns annually is much more important.

With all of the complications involved in corporate taxation, it becomes much harder to run the small business, while worrying about the small business taxes and the bookkeeping.  This can become burden on the small business owner, especially if he or she is the only employee. One of the most useful things you may do to eliminate some of this responsibility and minimize such risks as double taxation is to hire a CPA or a professional bookkeeper to ensure that your small business taxes are:

A. Actually handled - the worst thing that can be done is absolute nothing.
B. Handled in a timely manner - being late on small business taxes is almost as bad as not paying them at all.
C. Handled properly - paying too much or too little can have repercussions, both immediate and long-term, and improper bookkeeping and filing may result in fines, delays or audits.

The most important thing to do, above all else, is to ensure that small business taxes are paid and returns are filed. Whether it's you or a CPA doing it, it's one of the aspects of the small business that have to be taken care of, with no exceptions. For help with questions about small business taxes, please contact us.