NAWBO :: Small Business Tax Paying 101

Small Business Tax Paying 101

With tax season approaching, small business owners are wondering how this year will differ from previous years in terms of filing taxes.

In 2010, there will be plenty of newly expanded credits and deductions. It is hard to determine what affects your small business and your employees. According to Deborah Alter, owner of Alter & Alter CPA’s and NAWBO Tucson Board Member, “You must start you tax planning early. Planning isn’t for the IRS, it is for your benefit in the future.” This advice is especially true for the 2010 tax season and the new deductions and credits that now apply.

New deductions and credits that small business can expect this year include:

  • Auto expenses or mileage deductions if you or your employees are commuting to offsite locations. You deduct a certain amount (the standard mileage rate) for each mile driven, plus all business-related tolls and parking fees. In 2010, the standard mileage rate is 50 cents per business mile driven, a decrease from the 55 cents per mile rate in effect for 2009.
  • Education expenses as they relate to your current business
  • Legal and professional fees
  • Business entertaining including dinners, catered meetings, etc.
  • When you travel for business, you can deduct many expenses, including the cost of plane fare, costs of operating your car, taxis, lodging, meals, shipping business materials, cleaning clothes, telephone calls, faxes, and tips.
  • Moving expenses
  • Software needed to operate your business
  • Charitable contributions

Basic Small Business Tax Information:

Small businesses are required to file some or all of the following: federal income taxes, state taxes, payroll and/or self-employment taxes and sales taxes. In terms of the federal income tax, what you pay depends on the business entity you operate. For example, if you are self-employed, operate a partner business or operate a business with employees, you will file different forms and returns.

Business partnerships must file an information return, which is a requirement for organizations to report wage and non-wage payments made in the course of their trade or business to the IRS.

The federal income tax is a “pay-as-you-go” tax that is deducted from employee income over the course of the year. This is withheld from employee paychecks throughout the year and can be potentially returned when filing taxes properly and efficiently.

The self-employment tax (SE tax) is a social security and Medicare tax that is primarily for individuals who work for themselves. You must pay the SE tax if any one of the following applies: your net earnings from self-employment were $400 or more or you work for a church or a qualified church-controlled organization ie.) if you are a minister or a member of a religious order and receive $108.28 or more in wages from an organization.

Employment taxes are filed when a business has employees. They include Social Security and Medicare taxes. Employment taxes can also include federal income tax withholding and Federal Unemployment (FUTA) taxes.

Excise taxes also apply to certain businesses. If your business(es) manufacture or sell certain products, use various equipment, facilities or products or receive payments for certain services, you will most likely be paying some sort of excise tax.

If your business is required to file excise taxes, you will need to refer to Form 720. This form consists of several overarching categories pertaining to small businesses, including environmental taxes, communications and air transportation taxes, fuel taxes or taxes on the first retail sale of heavy transportation equipment.

Along with this information, Deborah also recommends visiting the IRS Website. “The IRS Website is fantastic. They have a lot of information on exactly which returns you must file for your business as well as online forms to make your life easier.”

Some other helpful resources:

  • If you are unaware of when to file certain forms, the tax calendar from the IRS is a great resource. Click here.
  • All businesses will need an Employer Identification Number (EIN), you can file an SS-4 application online here.
  • Need an IRS form or publication? Click here.
  • Visit the NAWBO Directory to find a fellow member who is tax professional or financial planner in your area.


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