What You Should Know About Taxes on Your Business

by Mar 11, 2022

Get the ‘Secrets of a Six Figure Freelancer’ ebook today for $1

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

Three benefits of studying business

Studying business may sound intimidating, but the skills that you’ll develop along the way can be life-changing. A business course...
Read More

Three AI tools for freelancers, that’ll help you work smarter

AI is revolutionising the world of business. Industries of all different descriptions are capitalising on the latest advancements that are...
Read More

UI vs UX: Are They The Same Or Different, And What Is Their Impact On A Website? 

The phrases ‘User Interface’ (UI) and ‘User Experience’ (UX) are frequently used in tech-related settings. What does a UX or...
Read More

Get Your Creative Business on the Map

As a creative professional, obviously you want to get your work out there. Often, though, that’s easier said than done....
Read More

How to Write Compelling Email Copy that Converts

In 2022 alone, there were a total of 333.2 billion emails sent out and received globally. Sounds outrageously high? That...
Read More

Running A Business & Having a Life

Running a business brings many challenges, and so does running a household. While the two aren’t mutually exclusive, keeping all...
Read More

Legal Issues Every Freelancer Should Know About

You may not have the resources of a larger company to handle legal matters, but it's important to know the...
Read More

Why You Should Become a Freelance Writer

Writing is a skill that doesn’t come easy to everyone, but if it’s something you do well and enjoy then...
Read More

How to Get Out and Promote Your Brand

As a small business owner, it's important to get out and promote your brand. You can't just sit behind your...
Read More

The Benefits of Working as a Freelancer

Freelance work has become more popular, but for many people, it can still be an unfamiliar idea. While there are...
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

Would You Like Help Finding Freelance Clients?

Learn more about the Six Figure Freelancers training programs, and learn how to take your freelance business to the next level.