How to Claim Taxes When Opening a Small Business
Taxpayers who start small businesses have many matters to consider, not the least of which is self-employment or employee taxes. This article shows you what you need to do to stay on top of this matter.
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Instructions
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Self-employed taxpayers will need to send in estimated taxes on a quarterly basis if they earned $400 or more during the year. To calculate your estimated taxes, first estimate the amount of income and expenses that you expect to earn and incur for the year.
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Divide the total net income you expect to earn during the year by four and calculate the amount of self-employment tax that you will owe on your quarterly portion. Although you can send in the same amount every quarter, you can also send in an amount based on the specific estimation of your earnings if they differ from one quarter to another. Be sure to send your payments in by the due dates mandated by the IRS. The Electronic Federal Tax Payment System may be the easiest way for you to do this.
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If your small business has other employees, then you may have to withhold taxes for them if you pay them W-2 wages. This involves withholding FICA and FUTA taxes for Social Security and Medicare as well as income taxes. You must report FUTA tax separately and pay it out of your own pocket. Your employees do not have to pay this tax themselves.
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You must pay the taxes you are withholding for your employees by depositing the funds with an eligible bank or financial institution. To do this, you must file Form 8109-B. You can also pay this money electronically using the EFTPS.
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Report the taxes you are paying on Form 941 (or Form 943 for agricultural employers.) At year-end, you must send W-2 forms to all of your employees and 1099 forms to any independent contractors who worked for you. You can prepare up to 20 of these at a time on the Social Security website at ssa.gov.
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Tips & Warnings
For more information, consult Publications 15 and 15A, Employer's Tax and Supplemental Tax Guide, and Publication 505, Tax Withholding and Estimated Tax.
This article is intended to be purely educational in nature and should not be construed as tax advice. For more information, visit the IRS website or consult your tax adviser.
