There are countless things you have to learn when running a small business. How to pay your taxes is one of them. As soon as you start making a profit, you’re going to have to start paying taxes too. Put simply, taxes are a compulsory contribution to the revenue of the state that you live in and there are relatively few countries in the world that do not charge income tax. In fact, you can actually count these countries on just one hand. They include Bermuda, Monaco, the Bahamas, Andorra, and the United Arab Emirates (UAE). For now, let’s consider paying taxes for a US based business. US based businesses pay tax to the IRS, or “Internal Revenue Service”. It is a U.S. Government agency that is put in charge of collecting taxes from anyone who owes taxes. For those who do not pay their taxes properly, tax laws will be enforced by the IRS too.
How Serious Are the IRS?
You can’t cheat the IRS. They deal with every single American’s tax return. On an annual basis, they will process two hundred and forty four million tax returns, ranging from individual returns to corporate returns. They also collected an average of $3.3 trillion in revenue, giving back just $426 billion to people in the form of tax refunds. As you can imagine, they have a lot of staff working for them to get all of this work done – over 80,000 people, in fact. As you can imagine, avoiding paying taxes is unlikely to go undetected. Now, you can organize your tax using an accountant, tax software, crypto tax software and more. What’s important is that you get your figures right and pay the right amount at the end of each fiscal year
What Do You Need to File?
As a company, you’re going to have to file a whole lot of paperwork to the IRS on an annual basis – even if you’re only a small business. Here are just a few forms you might need to file.
- 940 – a 940 reports your annual Federal Unemployment Tax Act taxes. Do not take this tax from your employees’ wages. Instead, the Federal Unemployment Tax Act (FUTA) and unemployment tax systems will provide you with funds towards this compensation instead.
- 941 – if you withhold income taxes, social security tax, or Medicare tax from your employees’ paychecks, you will have to file a 941 form. This form can be used to pay your employers’ portion of social security or medicare taxes.
- 1040 – this is an income tax file. You have to file this if you have generated profits. If you are self-employed, you will need to submit a schedule SE as well as your 1040.
As you can see, tax can get pretty complicated pretty quickly. But it is something you’re going to have to engage with. So, hopefully, some of the information above will serve as a brief introduction and guideline for you!
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