What You Should Know About Taxes on Your Business

by Mar 11, 2022

Get 60% off the ‘Secrets of a Six Figure Freelancer’ ebook today

Business owners know that taxes are not a simple matter. Whether you have several employees or you’re a sole proprietor, your tax situation will likely be complex and based on factors unique to you and your business. While there’s no “one size fits all” when it comes to taxes on businesses, there are some areas that you need to know about.

Federal and State Taxes

The legal structure of your business—sole proprietorship, partnership, LLC, or other—will affect the way your federal and state taxes are handled. The structure you choose will depend on the size and operations of your business, but you should consult an accountant about your individual tax planning. Planning in advance is necessary to make sure you will have the funds on hand to pay the taxes you owe.

Most business owners will pay quarterly taxes, which are prepayments on the estimated total federal taxes that will be due for the tax year. This applies to sole proprietors, partners, and members of an LLC, as well as individuals who work as contractors and freelancers. Some states also require quarterly payments for their taxes.

Self-Employment Taxes

Self-employment taxes are extra taxes that cover contributions to social security and Medicare. The self-employment tax rate is 15.3%; 12.4% to go toward social security and the remainder toward Medicare. These taxes are added to the amount you owe for federal income tax.

The self-employment tax doesn’t just apply to independent contractors or sole proprietors. An LLC owner needs to pay self-employment taxes on all their business profits. Partners must also pay self-employment taxes on their personal as well as their business income.

Deductions

Understanding deductions is crucial to business owners who want to reduce the amount of tax they owe. The IRS will allow what they consider “ordinary and necessary” deductions. The tricky part comes in knowing what deductions the IRS considers necessary.

Common deductions include business operations costs such as insurance and loan interest, vehicle expenses, advertising costs, legal fees, and office supplies. Travel and meal expenses may also be deductible. Individual businesses differ, so you should consult an accountant before claiming a deduction.

Although taxes for businesses and self-employment can be complicated, having a solid understanding of tax laws and procedures can help. With advanced planning, you can legally reduce the amount of taxes you owe and pay them on time.

For more information on handling your own business, check out my ebook here!

Other Posts You Might Like

Important Accounting Tasks You Need to Get Done at Your Business

If you want to run a successful business, you absolutely need to keep up with your finances. Your financial abilities...
Read More

How to Keep Everything at Your Business Organized

One of the most important and underrated parts of running any successful business is the organization that goes on behind...
Read More

Types of Investors That Will Buy Your Business

When growing and building a business from the ground up, there are several different ways that you can make a...
Read More

How to Handle an Influx of Clients

Any business can experience times of growth and times of stagnation. And when you are experiencing growth, your first response...
Read More

How to Improve Client Satisfaction

Making clients happy from the start of their journey is important to keeping them long-term and to their success. All...
Read More

How to Keep Up With Your Competitors

As a successful business owner, your first priorities are on doing quality work and serving the needs of your clients....
Read More

How to Strengthen Cybersecurity for Your At-Home Business

The pandemic has altered the course of careers for thousands of people over the last two years. Many have started...
Read More

How to Change Your Mindset to Achieve Business Success

Going out on your own and starting your own business is the most effective and direct route towards the kind...
Read More

What You Should Know About Taxes on Your Business

Business owners know that taxes are not a simple matter. Whether you have several employees or you’re a sole proprietor,...
Read More

How to Avoid Employee Burnout at Your Company

As you are running a business you have to mind the balance between making sure that your employees are productive...
Read More

Hi, I’m Kate

Hey, I’m Kate! I’m a designer, digital nomad and founder of Six Figure Freelancers – I love to help talented tech pros start businesses.

Work with Me

Get The Book

AppSumo badge

Featured Post

Pin It on Pinterest