The Business of Taxes

One important thing about being in business is making sure you are up-to-date with your taxes. Now that you are self-employed and owned your own business, taxes a no longer just taken out of your paycheck each month. It is now your responsibility to pay your own taxes on your business income and get them in on time. Here are a few IRS rules on how to go about doing this and making sure your business stays out of trouble with the IRS.

Income Tax

All businesses must file an annual income tax return. With the exception of Partnerships, they file an information return. Which form you use depends on how your business is organized. The federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year. If you are a sole proprietor, partnership, or an S corporation, you have to make estimated tax payments if you expect to owe tax of $1000 or more when you file your return. Corporations have to make estimated tax payments if they expect to owe tax of $500 or more. If you are not required to make estimated tax payments, you may pay any tax due when you file your return.

Self-Employment Tax
You usually must pay self-employment tax if you had net earnings from self-employment of $400 or more. Net profit is calculated by subtracting ordinary and necessary trade or business expenses from your total self-employment income. You are self-employed for this purpose if you are a sole proprietor, an independent contractor, a member of a partnership, or are otherwise in business for yourself. If you had a small profit or net loss from your business but want to pay into the Social Security system, you may be eligible to file Form 1040 Schedule SE and use one of the two optional methods to compute your net earnings from self-employment. See Publication 533, Self-Employment Tax, to see if you qualify to use an optional method. This method may also allow you to qualify for the earned income credit or the child and dependent care credit.

Now from time-to-time we get our families involved in our business. Even some of us are employing them on a part-time or full-time basis. Here are some general rules to follow when your family member becomes one of your employees. This will help you determine if his or her wages are subject to employment taxes

Employing your child

Payments for the services of your child under the age of 18 who works for you in your business are not subject to social security and Medicare taxes. If these services are for work other than in your business, such as domestic work in your private home, they are not subject to social security and Medicare taxes until your child reaches 21. The wages for these services are not subject to social security, Medicare, or FUTA taxes. But they may still be subject to income tax withholding.

Employing your spouse

If your spouse works for you in your business, the wages you pay to him or her are subject to income tax withholding, social security, and Medicare taxes, but not to FUTA tax. However, the services of your spouse employed by you in other than your business, such as domestic service in your private home, are not subject to social security, Medicare, and FUTA taxes.

Employing your parent

If your parent works for you in your business, the wages you pay to him or her are subject to income tax withholding, social security, and Medicare taxes. Social security and Medicare taxes do not apply to wages paid to your parent for services not performed in your business, but they do apply to domestic services if both the following conditions are met.

Your parent cares for your child who lives with you and is under 18 or requires adult supervision for at least 4 continuous weeks in a calendar quarter due to a mental or physical condition.
You are a widowed, divorced, or married to a person who, because of a physical or mental condition, cannot care for your child during that period.

This should give you an idea of what Business Taxes you should be paying. All of this information and more can be found at www.irs.ustreas.gov. Keep your business in tax order and always seek advice of your tax professional.