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Business
Basics > Need Business Help?
Taxes
Taxpayer
Identification
Federal
Payroll Taxes
Other
Payroll Taxes
Wage
and Tax Statement
Selecting
a Tax Year
Filing
Tax Returns
Tax-Deductible
Business Expenses
The following
tax information is believed to be accurate, however tax laws change
frequently. Please visit the following websites for the most recent
tax information or if you need clarification:
Taxpayer
Identification
If
you're a sole proprietor and do not have employees, you can simply
use your Social Security Number to identify yourself for tax purposes.
However, corporations, partnerships, and any type of employers
must obtain an Employer Identification Number (EIN). You can apply
either by mail or telephone. You'll need to send in Form
SS-4 at least four or five weeks before you need the EIN if
applying by mail. It is recommended that you apply over the phone
by calling (800) TAX-FORM. This way the IRS should be able to
give you an EIN immediately.
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Federal
Payroll Taxes
When hiring an employee, he or she must complete Form
I-9 to verify eligibility to work in the United States. Form
W-4 must also be completed to indicate the employee's filing
status and withholding allowances for income tax purposes.
FICA (Federal
Insurance Contributions Act) taxes must be withheld from each
paycheck your employees receive. A 6.2% Social Security tax and
a 1.45% Medicare tax comprise the FICA withholdings. As an employer,
you are required to pay a matching amount of FICA taxes for each
employee. For example, if an employee's paycheck is $1000, you
must withhold $62 for Social Security and $14.50 for Medicare,
for a total of $76.50 in taxes. In addition, the company will
pay another $76.50 out of its own pocket, so the total amount
of FICA taxes to be paid is $153.
A few weeks
after you receive your EIN, the IRS will send you a Federal Tax
Deposit Coupon Book, or Form 8109. You can use it to pay your
payroll taxes at an authorized financial institution in your area.
Typically, you will need to make a tax deposit monthly, depending
on the size of your business.
You are also
required to file Form 941, the Employer's Quarterly Federal Tax
Return. It provides the government with information on the taxes
you withheld from each employee, as well as the amount that came
out of your own pocket.
FUTA (Federal
Unemployment Tax Act) taxes compensate workers who lose their
jobs. You will probably need to pay this tax, but the amount depends
on how much tax credit you receive. The money comes from your
own funds; employees do not have it withheld. Talk to your accountant
to figure out how much you'll need to pay in FUTA taxes.
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Other
Payroll Taxes
The
state in which you do your business will also furnish you with
an EIN. Many states and localities have their own taxes that will
need to be withheld from paychecks. Usually information about
such taxes is available from the state's department of revenue.
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Wage
and Tax Statement
A
Wage and Tax Statement, or W-2, must be send to each employee
by January 31 of the year after his or her period of employment.
It summarizes how much the employee earned and how much of each
type of tax was withheld during the year. You should send a copy
of each W-2 to the Social Security Administration as well.
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Selecting
a Tax Year
A
tax year is the annual accounting period used to keep records
and report income and expenses. The tax year may be a calendar
year or a fiscal year.
A calendar
year is 12 consecutive months starting January 1 and ending December
31. Most sole proprietorships, partnerships, limited liability
companies, and S corporations use a calendar year.
A fiscal year
consists of 12 consecutive months ending on the last day of any
month other than December. Fiscal years are advantageous if the
company is started in the middle of the calendar year, especially
if substantial expenses are accrued. Extending the fiscal year
past the end of the calendar year can help a new business owner
to recover some of the start-up costs before he or she must report
financial information.
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Filing
Tax Returns
The
structure of your business as well as whether you use a fiscal
or calendar year will affect your tax filing process. The list
below summarizes some of the guidelines each type of business
must follow.
- Sole
Proprietorships: File Schedule C (Profit or Loss From Business);
Form 1040 (U.S. Individual Tax Return); and Schedule SE (Self-Employment
Tax). Tax filing date for calendar-year taxpayers is April 15.
Fiscal-year taxpayers must file returns by the 15th day of the
fourth month after the end of their tax year.
- Partnerships
and Limited Liability Companies: File Form 1065 (U.S. Partnership
Return of Income) and distribute Schedule K-1 (Partner's Share
of Income, Credits, Deductions) to partners or LLC members.
Due dates are the same as those for sole proprietorships.
- Corporations:
File Form 1120 (U.S. Corporation Income Tax Return). For calendar-year
taxpayers, the due date is March 15. For fiscal-year taxpayers,
the return must be filed by the 15th day of the third month
after the end of the corporation's tax year.
- S Corporations:
File Form 1120S (U.S. Income Tax Return for an S Corporation)
and distribute Schedule K-1 to shareholders. The due dates are
the same as those for standard corporations.
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Tax-Deductible
Business Expenses
According
to the IRS, some costs may be tax deductible if they are "ordinary"
(common and accepted in your field of business) and "necessary"
(appropriate and helpful for your business). Some of the business
expenses that you may be able to deduct are:
- Equipment
purchases
- General
business expenses - advertising, employee benefit programs,
insurance, legal and professional services, utility costs, rent,
employee wages, etc.
- Auto expenses
- Meal and
entertainment expenses
- Travel
expenses
- Home office
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