How Much Does a Business Pay in Taxes?
For small businesses in 2019, it is important to consider the tax rate. The small business tax rate is currently a flat 21% for a C-corporation. Typically, the small business tax rate is 19.8%. There is some differentiation involved. Businesses will pay different amounts in taxes based upon their entities. C corporations pay 17.5% for their tax share, though it can be difficult to compare the rate. Sole proprietorships pay a 13.3 tax rate, compared to small partnerships, which pay a 23.6% tax rate, and small S corporations that pay a rate of 26.9% tax rate. Proper business accounting greatly assists with business owners who must shift funds to pay for their individual company taxes.
How Do I Do Taxes for My Small Business?
When the time of year eventually shifts into tax season, there are different ways for business owners to file their taxes. Initially, the steps will depend upon whether the business is a sole proprietorship or whether it uses a legal entity such as an LLC or corporation. Each type of entity requires a contrasting tax form for reporting. After determining this initial step, the taxable business income can be calculated. The first step for business owners is to collect and gather all relevant business records. If a computer program or spreadsheet has been utilized throughout the year to keep track of the income, the process will be streamlined already, and thus smoother. QuickBooks and Quicken are reputable.
What Kind of Taxes Does a Small Business Pay?
For both large and small businesses, business growth is the goal. This business growth translates, during tax season, into appropriate retribution for the government. There are three different varieties of taxes that small businesses pay: federal, state, and local taxes. All businesses are required to pay taxes on their income. This means that the business must pay a tax on the established profit of the company. How that tax is paid ultimately depends upon the form of the business. It is important to note that businesses don’t directly pay sales tax on services or products that they sell. However, if the business operates in a state that has a state income tax, there needs to be a system set up to collect, report and pay state sales tax.
Why Do Small Businesses Pay So Much Tax?
There have been some changes in the tax code that are worthy of note. The Tax Cuts and Jobs Act, which was signed in December 2017, came with several key changes to how small businesses pay taxes, and how much taxes they pay. According to the National Federation of Independent Business, it has been reported that most small businesses don’t pay income tax at a business rate. Instead, it is recorded that approximately seventy-five percent of small businesses are indeed not corporations. This substantial percentage of small businesses are considered “pass-through” tax entities, which means that each of these small businesses pays tax at the personal tax rate of the owner. The income tax rates that went into effect in 2018 and will continue for eight years have ramifications. Larger businesses and those taxed as corporations have the biggest tax cut under the new law. The corporate tax rate was cut from a table with the highest corporate taxes to a flat 21% and currently has no expiration date.
Can a Small Business Get a Tax Refund?
Whether or not a small business gets a tax return entirely depends on the type of business entity and the type of taxes that are paid. Typically, C-corporations are the only type of business eligible for a tax refund. Unlike other businesses, C-corporation profits are taxed separately from their owners. Subchapter C of the Internal Revenue Code specifies this. If a C-corporation pays more estimated tax during the year that is due on the final return, it can get a tax refund. A business could also get a tax refund if it overpays on payroll or sales taxes.
Business Taxes are Due
Tax filing deadlines have a habit of creeping up on business owners. Frustrations can surmount when business owners have to pay a tax-related fine that could otherwise be avoided. The first day that will be relevant for business owners is January 15th, which is the fourth and final quarterly tax payment for the previous tax year. January 31st is the next date to be aware of, as it is the form W-2 filing deadline. This deadline has been in place since the 2016 filing year. For businesses that have employees, two copies of the form W-2 will need to be filled out. Businesses that work with independent contractors need to be aware of the form 1099-MISC Copy A filing deadline, which also arrives on January 31st. February 15th is the Form 1099-MISC Copy B filing deadline.
Business and Tax Services
There are many different tax services that are available for business owners. Millions of Americans pay a tax professional or a tax company to prepare and file their tax returns every year. One of the reasons why it is important to procure professional assistance is because Congress continues to make changes to the tax code. The changes in the tax code can be radical and certainly can leave many people confused and frustrated. Nevertheless, decoding taxes is of particular import, particularly since collecting appropriate evidence of profit margin will be a laborious activity for the small business owner.
Business Taxes vs Personal Taxes
Filing business taxes is a very different process from filing personal taxes. To be sure, the same basic principle is at work, however, there are some significant differences between the two. Most people use one tax return, which is known as Form 1040 to file their personal income taxes each year. Business owners will have different choices in the form of tax returns. For sole proprietors, the business-related income will be reported on Form 1040. For C corporation business owners, the relevant form will be 1120. S corporation owners need to fill out a form of the 1120S. General partnership owners should use form 1065, and those who run nonprofit organizations will use the Form 990.
Business Taxes Checklist
Please consult the following list to determine your business taxes checklist.
- Understand and select the tax forms that will need to be filled out for your business.
- Meet with your professional bookkeeper.
- If you use your personal vehicle for business, update your mileage log.
- Gather your financial records.
- Capture all the expenses you paid for out of pocket.
- Gather any 1099s that have been received.
- Pull receipts for asset purchases.
- Request a tax filing extension if necessary.
To get started on your service, call our office, Don R. Walker, C.P.A., at 817-905-1040 to schedule an appointment for your business tax in Fort Worth, TX.