Understanding Tax Obligations for Your Business
Meeting your federal, state, and local tax obligations is crucial for your business’s success. Your business’s structure and location can affect the taxes you need to pay. Here are some tips to help you navigate tax payments:
Determine Your Tax Year
Your business must pay taxes and keep accounting records based on an annual fiscal year. The tax year can coincide with the natural calendar year, but you can choose a different month to end your 12-month accounting cycle if needed.
The IRS allows you to change your tax year with permission. You can choose a calendar fiscal year, a fiscal year, or a short tax year, depending on your business needs.
Understand Your State Tax Obligations
Each state and local government has different tax laws, so you need to check with them to determine your tax obligations. The most common state and local taxes for small businesses are income and payroll taxes.
Your business’s structure will determine your state income tax liability. Sole proprietors and corporations have different filing requirements.
If you have employees, you must also pay state payroll taxes, including workers’ compensation, unemployment, and temporary disability insurance.
Know Your State Tax Requirements
Visit your state’s tax authority website to learn more about the tax requirements for businesses.
Determine Your Federal Tax Obligations
Your business structure will also determine what federal taxes you must pay, such as income, self-employment, estimated, employer contribution, and consumption taxes.
Each tax category has specific rules and requirements that must be followed. The IRS can help you understand which ones apply to your business.
If you have employees, you must withhold federal payroll taxes, including income, Social Security and Medicare, unemployment, and self-employment taxes. Check with the IRS to determine your withholding requirements.
By understanding your tax obligations, you can avoid costly penalties and ensure your business stays in good standing with federal, state, and local tax authorities.