does a Business Start Paying Taxes?” may sound like a silly question, with an
expected answer of: “When you start making a profit, of course.” Not
are many dependencies that determine when a new small business owner is liable
for their first tax payment. For example, the moment you hire your first
employee you must deposit payroll taxes. If you are in the consumer retail
business, you must deal with sales tax. Then there are federal and state income
taxes, which you must pay once a quarter, and so on.
are some tips and resources that can help you navigate through your tax
obligations as a new business owner.
1. Determine Your
Income Tax Requirements and Manage your Payments
I first went into business I was blissfully unaware that if you expect to pay
more than $1000 in business tax in one year, then you must estimate your
federal and state income tax payment each quarter and remit it to the IRS and
your state before each quarterly deadline (estimated taxes are due four times a
year: April 15, June 15, September 15, and January 15).
truth is, many budding entrepreneurs ignore their income tax commitments until
it’s a little too late. And if you don’t plan ahead and set-aside enough money
to cover your quarterly payment, the results can be devastating in terms of
pay your quarterly income tax (not subject to withholdings), you will need to complete
the appropriate form for your type of business structure. For example, if your
business is an LLC, the LLC gets taxed separate from the owners, while sole
proprietors report their personal and business income taxes using the same form.
More on how your business structure affects your tax liability and which forms
you will need here.
can use your previous year’s tax return as a guide as to what your payment will
be, but good record keeping and business forecasting will also help you “set
aside” the right amount of taxable income as it comes into your business. Don’t forget to deduct business expenses from your base income before you calculate your tax
should pay your state income tax at the same time. Find links to your state’s tax
office for the appropriate forms here.
2. Paying Sales Tax – Does it Apply to You?
tax applies to certain retail products (rarely services) and if your business
has a physical presence in a state, such as a store, office or warehouse, you
must apply for a sales tax permit and collect applicable state and local sales
tax from your customers. You will then pass that sales tax on to your state
revenue office on a monthly or quarterly basis.
Determining whether your business
qualifies as having physical presence in a particular state (say, if you own a
warehouse in Virginia but sell your services
and the implications on sales tax collection can be confusing. Contact your state’s revenue
agency or talk to your local SBA
representative if you are unsure.
If you operate an online
e-commerce site, read up on collecting
sales taxes over the Internet.
states are exempt from sales tax including Alaska,
Hampshire and Oregon.
3. Employment Tax – Withholding and Matching