How to Calculate Taxes for Your Business

Owning a small business has its perks, right ? You get to be your own bos, set your own hours, make your own decisions. But no matter how much playfulness you have running the usher, there ’ s one thing about owning a small business that makes most small-business owners cringe .
Yep, you guessed it—calculating small-business taxes .
It ’ randomness not everyone ’ sulfur favored weekend natural process, but unfortunately, you have to calculate your small-business taxes at least once a quarter. There ’ second a fortune that goes into this, so put your swot hat on and let ’ s honkytonk correct in .

How Is Your Business Legally Structured?

First off, before you touch a single spreadsheet, make certain you ’ rhenium clear on the legal social organization of your commercial enterprise. Whether you run a bookshop or a research consult tauten, the IRS will classify your business as one of the adopt five structures : sole proprietorship, partnership, LLC, S corporation, or C pot.

The IRS will classify your business as one of the postdate five structures : sole proprietorship, partnership, LLC, S corporation, or C pot .

For the oral sex scratchers out there, think, Well, I don ’ thyroxine know—I merely own a modest clientele, the IRS is credibly classifying you as a sole proprietorship. If that doesn ’ t sound right to you, take a second and get a refresh on each of the business structures .

How Do You Calculate Income Taxes for Small Businesses?

Do you remember how you calculated income taxes for your personal file ? You took your annual income and subtract deductions and credits to get your taxable income. That taxable income put you in certain tax brackets, with each bracket corresponding to a tax rate. last, you multiplied your tax rate and your taxable income to get how much you owed the IRS. Easy, right ?


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Calculating small-business taxes international relations and security network ’ thymine much unlike, specially if your clientele is a sole proprietorship, partnership, LLC, or S pot ( we ’ ll come back to these in a hour ). C corporations are a short morsel unlike, so it ’ s worth spend a few words on them .

What’s the tax rate for C corporations?

C corporations are tax twice, once at a bodied rate of 21 % and then again at their shareholders ’ personal rates ( if they take a dividend ). 1
For exemplar, let ’ s say you own a caller called Money Makeover Inc. Suppose your company brought in $ 200,000 in net income. And let ’ s besides go ahead and say that after commercial enterprise expenses and deductions, you ’ re left with $ 175,000 of taxable income .
so, inaugural, Money Makeover Inc. has to pay taxes at the corporate level, which is a flat rate of 21 %. Remember : No matter how much net income Money Makeover Inc. makes, it will constantly pay a flat 21 % for income taxes. In our case, that would be :
$ 175,000 x 21 % = $ 36,750
so, Money Makeover Inc. pays $ 36,750 in income taxes for the pot. now, let ’ s say you ’ re one of two shareholders for Money Makeover Inc., and you get a dividend of $ 25,000. good, this is where things get a little complicate, indeed wage attention .
If you owned the stock longer than 60 days, it ‘s called a “ modify dividend, ” and the IRS then will tax it on a sliding scale. That means the higher your dividend the more you ‘ll pay in taxes. If your qualify dividend is lower than $ 38,601 ( like in our exercise above ), you would n’t pay taxes. But the here and now your dividend goes above $ 38,601, you start to pay the tax. The rate maxes at 20 % for earnings over $ 425,800. now, let ‘s say you have n’t owned the broth longer than 60 days. then, it ‘s called an “ unqualified dividend. ” You ’ ll pay taxes on unqualified dividends by using your personal tax rate, which you ’ ll find in your tax bracket .

What’s the tax rate if you’re not a C-corp?

If your business is a sole proprietorship, partnership, LLC, or S corporation, calculating income taxes is much easier than C corporations. Whatever profit you make will be taxed once at your personal tax rate .
indeed again, let ’ s say you own a company called Money Makeover. Let ’ s besides say your ship’s company makes $ 75,000 in profit. And let ’ s go ahead and say after business expenses, deductions and employment taxes ( we ’ ll arrive to those future ), you ’ rhenium left with $ 50,000 in taxable income .
now, if this is your merely income and you ’ re not filing jointly with your spouse, then based on your tax bracket ( $ 9,700 taxed at 10 %, $ 29,775 taxed at 12 %, and $ 10,525 taxed at 22 % ), you would pay $ 6,900 in taxes .

How Do You Calculate Employment Taxes for Small Businesses?

Hopefully you ’ re not tired however, because we haven ’ deoxythymidine monophosphate even touched on use taxes. then far, calculating small-business taxes hasn ’ t been superintendent difficult ( if you ’ ve been on the contend busbar, you could use some tax serve ).

But when you start hiring people, you have to pay use taxes, which breaks down into social security and Medicare taxes .

How do you calculate social security taxes?

All employees must pay social security taxes on income below $ 132,900 ( if your income is above $ 132,900, you ’ ll pay taxes improving to that measure ). 2 It ’ second ace easy to calculate this tax. Just take 12.4 % of your employee ’ s income and set aside 6.2 % for taxes. Your employee will then pay the early 6.2 % .

How do you calculate Medicare?

Everyone pays Medicare. To calculate this tax, take out 2.9 % of your employee ’ s wages and set away half, which is 1.45 %. 3 Again, your employee will pay the early half .

How Do You Calculate Estimated Taxes?

immediately, here ’ randomness where things get catchy for belittled businesses. Unlike personal filers, who file their taxes once a year, small-business owners have to pay estimated taxes once every quarter. Yes, that ’ s four times a year .
Estimated taxes, or quarterly taxes, are based on what you expect your taxable income to be throughout the class. Yeah, that can be tough, particularly if you ’ re merely starting your small occupation. But once you ’ ve got an income estimate to work with, it ’ s actually not so bad. here ’ s a quick bit-by-bit process to help you figure out these quarterly headaches ( good-for-nothing, taxes ) .
1. Estimate your taxable income this year .
2. Calculate how much you ’ ll owe in income and self-employment taxes .
3. Divide your estimated total tax into quarterly payments .
4. Send an estimate quarterly tax payment to the IRS .

Estimated taxes, or quarterly taxes, are based on what you expect your taxable income to be throughout the class .

How Do Tax Deductions and Credits Play Into This?

Tax deductions and tax credits are the biggest fracture you ’ ll arrive from the IRS. Deductions reduce your taxable income, while tax credits reduce the actual come you owe to the IRS .
The biggest tax subtraction for sole proprietors, partnerships, LLCs, and S corporations is a 20 % discount on all income. 4 Yeah—20 %. That means if your taxable income is $ 100,000, you can automatically deduct $ 20,000 .
You can browse this tilt of common deductions to find out which ones apply to your little occupation, or talk to your tax pro .

The biggest tax deduction for lone proprietors, partnerships, LLCs, and S corporations is a 20 % discount on all income. 4

Want to Never Do Small-Business Taxes Again?

Look, we get it. You have a company to run. If you ’ rhenium ill and tired of balancing spreadsheets, filling out quarterly forms, and filing annual returns by yourself, take the following tone and hire a tax pro. An have tax pro will not alone save you prison term, but they can besides save you money, since it ’ s their speculate to know more about taxes than you .
Don ’ t know where to find competent, trustworthy professionals ? Don ’ t worry. We can help you find tax professionals near you—ones that Dave himself recommends .
Find a tax pro near you today .

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Category : Finance