The Details Matter
A crucial component of being a small business owner is meeting certain tax requirements in order to remain compliant in the eyes of the IRS. It can feel overwhelming to keep track of every rule and deadline, especially while juggling countless other business responsibilities day in and day out.
That is why the Xendoo team has created this guide to help business owners stay on top of their tax requirements, remain compliant throughout the year, and effortlessly maximize their return!
Keep Your Bookkeeping Up-to-Date
Up-to-date and accurate bookkeeping saves business owners time, stress, and money during tax season.
By keeping your books up-to-date, you can be confident that you are reporting your income and expenses correctly, paying the proper amount in taxes, and paying your estimated taxes in a timely manner, which produces a stress-free tax season. Instead of playing phone tag with your finance professional over missing documents, you can work with an online accountant who will determine the tax deductions you qualify for and file your taxes on your behalf, so you can get back to what you love – growing your business!
Pay Self-Employment Tax
In typical payroll situations, self-employment taxes are split between the employee and employer, each paying 7.65%. Self-employed individuals pay both halves: 12.4% for Social Security and 2.9% for Medicare – 15.3% all together, which applies to business profit. For example, if your business is an LLC, and made $100,000 in profit, you will pay $15,300 in self-employment taxes. Self-employment income is reported on the Schedule C that accompanies Form 1040. As a rule of thumb, self-employment taxes are required if you made $400 or more in net earnings from self-employment.
While self-employment taxes cannot be waived, there is a way to decrease them.
Self-employment tax payments can be decreased by electing to be taxed as an S-Corporation. S-Corporation owners pay themselves in two different ways: salary and distributions. While the salary is subject to self-employment taxes, the distributions are exempt, which allows S-Corps to avoid double taxation.
It is always best to speak to a small business tax accountant. They will get to know your business, and determine if S-Corp Election is right for you.
Pay Quarterly Estimated Taxes
Because self-employed individuals do not have taxes withheld from their paychecks like W-2 employees, they pay quarterly estimated taxes in order to cover Social Security, Medicare, and income tax. Those that expect to owe $1,000 or more in income tax are required to make quarterly estimated tax payments, and will file using Form 1040-ES.
To ensure that your estimated tax payments are made on time, mark your calendar with the upcoming deadlines:
- January 18
- April 18
- June 15
- September 15
- December 15
Now comes the fun part: calculation! By dividing last year’s tax liability by 4, you can determine what you will owe each quarter for this year.
For example, if you paid $10,000 in taxes last year, you will owe $2,500 in quarterly estimated taxes this year ($10,000/4 quarters = $2,500).
If your income fluctuates, consider calculating your payments based on your quarterly earnings instead. You can also take advantage of Xendoo’s small business tax services. Our expert online CPAs are available all year long, so you can make informed decisions each quarter, and maximize your return when tax season arrives!
Separate Personal and Business Bank Accounts
One of the most straightforward ways to remain tax compliant is to separate personal and business bank accounts.
Using a business bank account and credit card ensures financial accuracy, which is crucial to tax compliance. Instead of sorting through personal and business expenses while bookkeeping, you will be certain you are only recording relevant expenses, and your books will reflect your true financial position.
If you utilize personal assets for your business, like a home office or vehicle, keep detailed records of when and how they are used in order to support the deductions you claim. When tax season arrives, you will have the financial clarity needed to accurately report your financials to the IRS.