Nothing strikes fear into small business owners quite like taxes. At Morgan & Associates, we assert that preparation is the key to taxes. When you have the needed documents, calculations are easier, and your payments can be estimated quickly.
In the brief guide below, we outline the information critical for tax purposes and which kinds of taxes you’ll most likely pay.
(NOTE – Tax preparation begins with effective bookkeeping. If your bookkeeping is disorganized and confusing, we encourage you to contact us in the form below. Accurate bookkeeping is the foundation for a strong business.)
Information Critical for Taxes
Of course, receipts are important to keep. We all visualize the infamous shoebox with receipts spilling out of it. And while that system is better than nothing, we strongly encourage you to use a software application to track receipts for business purchases.
Your software should also track paid and outgoing invoices, plus the depreciation of long-term assets.
In addition, save bank statements, credit card statements, and records for the costs of goods sold. (For the cost of goods sold, track the prices of raw materials and items purchased from other companies to make your final products or perform your services.)
Small Business Taxes
To start, you’re expected to pay quarterly taxes. A common rule of thumb is 25% of your profit for that quarter should be set aside for this federal (and sometimes state) tax payment.
The three most common annual taxes are income, self-employment, and employment. Every business owner will pay an income tax. It’s based on your earnings from your business, including your salary and any profits. (Please note, certain business structures require you to make a separate tax return for your business. You pay that income tax before any profits go to you. Seek professional help if you’re unsure.)
Your self-employment tax covers Social Security and Medicare. Because you’re self-employed, you – not an employer – pays this federal tax.
As for employment taxes, you, the business owner, pays for portions of your employees’ Social Security, Medicare, and federal unemployment taxes. You should also be withholding a portion of their pay to cover their estimated taxes. (Their estimated taxes are calculated on their W-4, a form they should have completed when first hired.)
Morgan & Associates Know Small Business Taxes
This information is just the start. We’ll be glad to help you determine quarterly taxes, make a schedule for tax forms to be sent and teach you about the kinds of small business taxes you’re expected to pay. We’re here to help.