One of the zillions of events recently canceled because of the coronavirus is my Small Business Tax Workshop hosted by the Virginia Department of Small Business and Supplier Diversity (SBSD), the City of Falls Church Economic Development Authority and the Falls Church Chamber of Commerce. My Small Business Tax Workshop was designed to help small business owners understand their tax filing and payment responsibilities, and to gain awareness on getting assistance. We planned to cover several key elements of business tax and financial practices that are essential to understanding and controlling business finances.
I was all ready to go when we got the official word about workshops and other gatherings being canceled. So, here is an overview of what I planned to share in the workshop:
- What and When to File
Small businesses usually operate in one of three ways for tax purposes. By default, one person operates as a sole proprietor who files a Schedule C with her or his individual income tax return. Two people, by default, operate as a partnership and file an IRS Form 1065, U.S. Return of Partnership Income, due on the 15th day of the third month after the tax year ends (i.e., March 15 for a calendar year-end). Businesses with up to 100 domestic owners can form a Subchapter S Corporation, which files an IRS Form 1120S, U.S. Income Tax Return for a Subchapter S Corporation, also due on the 15th day of the third month after the tax year ends. Confused? The IRS spells it all out in detail here – https://www.irs.gov/businesses/small-businesses-self-employed/business-structures.
- Tax Payments
Employees pay taxes through the payroll process. It’s done for you. Like everything else in your business, tax payments are DIY. The tax agencies require payments to cover your annual tax liability on a quarterly basis. That means tracking your finances, projecting your taxable business income and making payments on April 15, June 15, September 15 and January 15. The IRS and state tax agencies accept payment via check/coupon, electronic bank account withdrawal, and other options. In addition to income taxes, business owners need to pay self-employment taxes, equal to 15.3% of net profits. More details are right here – https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes.
- Business Expense Deductions
Businesses can deduct from income the “reasonable and customary” expenses needed to operate her or his business. The 2017 tax law contained several favorable changes for small businesses, including higher asset depreciation limits and the new Qualified Business Income Deduction. The IRS has an incredible amount of information about business expenses at https://www.irs.gov/businesses/small-businesses-self-employed/deducting-business-expenses.
My Small Business Tax Workshop will probably be rescheduled. Until then, I hope that this overview helps to make your aware of the tax and financial practices that are essential to understanding and controlling your business finances.