If you’ve recently opened up a small business, or if you’re thinking about doing so, you should probably educate yourself on what that means for your taxes. Business taxes are very different than personal taxes, and generally require a lot more knowledge and effort. Here are a few things that separate business taxes from the ones that most people file every year.
Variety of Returns
Personal tax returns are so simply organized that most people recognize the phrase “ten-forty” as a tax return instantly. After all, the 1040 is the only one most people ever have to deal with. If you run a business though, there isn’t anywhere near that uniformity of form. The return you must file depends on the type of business; individually owned businesses require one form, corporations another, and partnerships yet another.
Everyone knows that April 15th is tax day. But if you run a business, there are a lot more “tax days” than just that. A business must turn in tax estimates every quarter, so January 15th, April 15th, June 15th, and September 15th. In addition, many businesses need to report their taxes monthly, and there can be multiple different deadlines for the annual taxes in the spring.
Tax Rates are Different
Individual tax brackets are pretty easy to understand, as any amount above a bracket is taxed at a specific percentage. With business, however, more factors go into calculating the tax rate. Roughly, the more you make the more you pay, but it’s not as clean cut as individual taxes. This isn’t even considering that there are different tax rates in different states, so a business tax return in Yonkers, NY area will look very different from one in rural Maine.
It’s possible that you’ve clicked through a full year of taxes without hitting on a single deduction before; I certainly have. In living life and working for someone else, there aren’t many opportunities for payments for things that are tax deductible. However, when you’re running a business, those deductible options are abundant. Because so much of your purchasing factors directly into your business, nearly anything can be deductible.
When you’re working for a company, taxes are pretty much just a thing that happens. You get your paycheck, with taxes taken out already, and at the end of the year, you just have to clarify it was all done correctly. When you run the company, however, the taxes aren’t automatically taken from your profits. You need to calculate the taxes owed and send them in yourself.
Ultimately, the difference between business and personal tax returns is more work. An individual tax return can be annoying for an afternoon, but a business tax return is a continuous process. Therefore, if you’re running a business, or if you’re thinking about starting one, definitely consider hiring a specialist to manage your taxes for you.