Small businesses pay taxes by defined due dates each year, but tax season shouldn’t be considered as only a short run-up to the due dates. Rather, tax season should be considered a year-round “season.” Taxes are complicated and the penalties for mistakes, delayed payments, or missed payments can be severe, so it is wise to get professional assistance to take care of your small business tax obligations properly and proactively. Waiting until the last minute will limit money-saving options and complicate the preparation needed.
When is Tax Season?
A business must calculate its taxable income based on a defined tax year which can be a calendar year of 12 consecutive months beginning on January 1 and ending on December 31, or a fiscal year that uses any 12 consecutive months and ends on the last day of any month except December. A short tax year takes place if your business is not in existence for an entire year or if you change your accounting period. In these instances, a tax return is still required for the time that the business was in existence.
For businesses that are structured as a sole proprietorship, a single-owner LLC, or C corporation, business taxes for the 2022 tax season are due by midnight on April 18, 2023. If your business is a partnership, S corporation, or multi-member LLC, taxes are due by March 15, 2023. These different types of entities will also need to use different forms for filing. For sole proprietorships and single-owner LLCs, you will need to file Schedule C as part of your Form 1040. Partnerships, S corporations, and multi-owner LLCs will need to complete Form 1065. C corporations will file using Form 1120. Any business with employees will file Form 941. Additionally, for those businesses in a state that has a sales tax, your business will need to fill out appropriate state forms. Quarterly tax payments are required for S corporations and C corporations.
How Much Do Small Businesses Pay in Taxes?
Tax rates are determined by the type of business entity. C corporations pay federal income taxes at a flat rate of 21%. For the largest corporations in America, roughly 150 companies, an alternative minimum tax (AMT) goes into effect in 2023 with a minimum tax rate of 15%. For sole proprietorships, partnerships, and S corporations, individual owners in these instances will be taxed at the ordinary income tax rates. LLC’s can be taxed like a sole proprietorship or partnership, depending on how many individuals own the company. An LLC can elect to be taxed as an S corporation or a C corporation.
Of course, federal income taxes are not the only taxes that small businesses are required to pay. Others include payroll taxes and excise taxes. State and local taxes can include state corporate income tax, sales tax, and property tax.
Best Practices for Small Business Taxes
Running a small business is challenging enough but tax season makes it more difficult. Here are four best practices tips:
- Keep great records.
- Separate personal and business expenses.
- Make sure that all income is documented.
- Hire a great CPA.
Get Expert Accounting and Financial Assistance
Contact Doerhoff & Associates, CPA, based in Jefferson City, MO for professional accounting and financial assistance that you can count on. Doerhoff & Associates has one goal in mind, to provide comprehensive business accounting services designed specifically for your success.