Filing Taxes Properly

If you're a business owner, it's important to be aware of the different types of tax liabilities that you may be responsible for. This can help you better prepare for tax season and avoid any surprises.

Here are two main types of business tax liabilities to be aware of as a small business owner.

Income Tax

The first and most obvious type of business tax liability is income tax. This is the tax you owe on any money your business earns throughout the year. It includes what you earn from selling products or services, as well as any interest or investment income.

To prepare for income tax, you'll need to keep track of all of your business income and expenses throughout the year. You only owe taxes on the portion of inventory you sell during the year, so be sure to track any inventory you have.

You need to keep receipts for any business-related purchases that you make. This could include things like office supplies, inventory, or marketing expenses. You'll also need to track your mileage if you use your personal vehicle for business purposes. Deduct the business-related portion of your vehicle expenses on your taxes after you've calculated your total mileage for the year.

You can deduct these business-related expenses from your income, which will lower the amount of tax that you owe.

Income tax is usually the biggest tax liability for small businesses, so it's important to be prepared. Hire an accountant or bookkeeper to help you track your income and expenses throughout the year to make tax time easier on your business.

Payroll Tax

You'll also be responsible for payroll tax if you have employees working for your small business. This includes federal, state, and local taxes from your employees' paychecks. It also includes the employer portion of Social Security and Medicare taxes.

As an employer, you're responsible for withholding payroll taxes from your employees' paychecks and then paying them to the government. You'll need to set up a separate account with the IRS for this purpose. Then you'll need to make regular tax deposits into this account based on how much your employees earn.

You can use payroll software to help you with the process of withholding and paying taxes. This can make it easier to calculate the correct amount of tax to withhold from each paycheck and ensure that you're making timely payments.

If you don't withhold the correct amount of payroll tax from your employees' paychecks, you could be subject to penalties and interest. It's important to stay on top of your payroll tax obligations to avoid any problems with the IRS.

Hiring a tax preparation expert can help you ensure that you withhold and pay the correct amount of payroll tax. They can also help you file the necessary paperwork with the IRS in advance. 

For more information, contact a small business tax preparation service near you.