When you decide to start your own business, you're signing on for a lot of stress. You work long hours, don't get much sleep, and you just hope to make it through your first year without calling it quits. With everything you've got going on, it's easy to make mistakes; there's a lot to keep track of and things slip through the cracks. Whatever you do – no matter what problems you're facing – don't overlook paying your business taxes. This basic mistake could cost you dearly.
Depending on what field you're in, and whether or not you employ others, your tax obligations vary. There are several considerations to make as you balance your books, but keeping your focus on the taxes you owe will prevent problems later on. Review these basics before tackling the accounting on your own and, if necessary, talk to a licensed tax professional for guidance. Filing and paying everything correctly the first time will make all the difference:
Income Tax – Unless you're part of a partnership, you'll have to file an annual income tax return for your business (information returns are filed for partnerships). Paying income tax, though, works a little differently. The government considers this a pay-as-you-go tax, meaning you're required to pay tax on income earned throughout the year. This is true whether you're a business owner or you're self-employed, as a contract worker, for example.
Self-Employment Tax –If you work for yourself, you're expected to pay taxes that an employer would normally withhold from your checks. In addition to income tax, you also have pay for social security and Medicare. These payments go toward your social security coverage, which provides you with disability and retirement benefits, as well as Medicare benefits.
Employment Taxes – Being a business owner with employees means keeping a close eye on what you have to pay in taxes for each one: social security, Medicare, federal unemployment and federal income tax. This is something that you, your head of payroll or accounting should become familiar with, as these taxes are expected to be paid on weekly, bi-weekly or monthly basis.
Understand that failing to file or pay employment taxes can create all kinds of problems. First, not filing your return can carry failure to file penalties and, if you owe, penalties and interest on the amount due. If you're a 1099 employee, it's easy to get behind on withholding and paying the correct amount in taxes. The more time that passes, the less likely it is you'll be able to dig yourself out of a tax debt hole.
When it comes to your employee taxes, failing to file or pay may bring about criminal charges. Withholding taxes from your workers and not paying them can be viewed as theft, in the eyes of the IRS. If you begin receiving notices regarding unfiled or unpaid taxes, it's probably a good idea to contact a tax resolution company. You can receive a free consultation and, depending on the issue, they can help put you into a formal resolution with the IRS. Mishandling self employment or payroll taxes can cause serious trouble, but it's certainly not beyond fixing.