What You Need to Know If You Need to Plan for Business Taxes

Hughes Snell CPA

If you started a new business in 2022, we’d first like to congratulate you on your effort. Starting a business not only takes a lot of time, hard work, and energy, it also requires a significant amount of planning.

For this blog post, we wanted to discuss some of the IRS’ tips for preparing and filing business taxes.

Income taxes

According to the IRS website, all businesses (except partnerships) must file an annual income tax return. (Partnerships file an information return.) The form you use depends on how your business is organized. If you have questions about what form you’ll need to use, be sure to speak to a licensed CPA.

You’ll also want to remember that the federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year. (An employee, on the other hand, usually has income tax withheld from his or her pay.) If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax.   Estimated taxes allow taxpayers to pay taxes on all of their income, including business and self-employment taxes, at set intervals throughout the year. Your CPA can help you understand when (and how much) you should pay toward your estimated taxes.

Self-employment taxes

Not all new business owners rent office space and oversee a staff. If you started an Etsy or Shopify page, or you started a different type of home-based business, you’ll need to plan for self-employment taxes.

According to the IRS website:

Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. Your payments of SE tax contribute to your coverage under the social security system. Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits.

Generally, you must pay SE tax and file Schedule SE (Form 1040 or 1040-SR) if either of the following applies.

  • If your net earnings from self-employment were $400 or more.
  • If you work for a church or a qualified church-controlled organization (other than as a minister or member of a religious order) that elected an exemption from social security and Medicare taxes, you are subject to SE tax if you receive $108.28 or more in wages from the church or organization.

The IRS also notes that there are special rules and exceptions for aliens, fishing crew members, notary public, state or local government employees, and foreign government or international organization employees, among others. If you have questions about whether you’re eligible for an exception, be sure to talk with your CPA.