How to Manage Your Business Taxes

Types of business taxes.

Here are the major types of small business taxes that you’ll have to manage as a business owner:

Income tax

Business owners and non-business owners alike pay income taxes, but income taxes are generally more complicated for business owners.

This is because business owners have to track and self-report all their business income and losses on their tax returns. This is different from an employee, who simply has to input the information from their W-2 into their tax software.

Of course, business owners could be issued 1099s reporting all or some of their gross business income, but no one is keeping track of their business deductions for them.

Additionally, since business owners are self-employed, they have to make sure that they’re paying enough money to the government throughout the year in the form of quarterly estimated tax payments. While employees automatically have taxes withheld from their paycheck every pay period, the IRS expects business owners to make estimated tax payments on their own every quarter.

Self-employment tax

On top of income taxes, business owners who are sole proprietors—meaning they report all of their business income and expenses on the Schedule C attached to their own tax return—are subject to the self-employment tax on their net business income.

The self-employment tax is the combination of the 12.4% Social Security tax and the 2.9% Medicare tax. While employees split this tax burden with their employers, business owners have to foot their entire Social Security tax and Medicare tax bill—92.35% of their net self-employment income.

Of course, the larger Social Security component of the self-employment tax is only assessed on your self-employment income up to the Social Security wage base for the year. This base is $160,200 for 2023.

Payroll tax

If you have employees working in your business—and that includes you, if you’re on payroll—you’ll have to withhold and pay payroll taxes on their wages.

Here are the federal payroll taxes:

• Social Security Tax – 12.4% on the employee’s wages, up to the Social Security wage base for the year; split equally between the employer and the employee
• Medicare Tax – 2.9% on all of the employee’s wages; split equally between the employer and the employee
• Additional Medicare Tax – 0.9% on employee’s wages over $200,000; paid by employee
• Federal Unemployment Tax – 6% on employee’s first $7,000 in wages; paid by employer

Employers may also have to withhold federal income tax, state and local income tax, and other state- or local-level taxes as part of their payroll tax obligation.

Sales tax

If your business sells goods to the public and your state imposes a sales tax, you will likely be responsible to collect and remit sales tax to the state.

Don’t be tempted to withhold sales tax from your customers at point of sale and then fail to remit it to the government. State taxing authorities take this very seriously and could shut down your business if you attempted something like this.

Note that in some states, the sale of services, as well as goods, is subject to sales tax.

Filing and paying business taxes.

In general, staying in tax compliance for any given tax has two major components: filing a tax return and paying the tax. If you fail to do either one of these, you could be looking at significant penalties and interest from the IRS on top of the taxes you owe.

Of course, note every business pays tax in and of itself. Passthrough entities such as partnerships and S corporations, for example, are typically not liable for any federal income tax because they “pass through” their income to their owners, who pay tax on this income on their personal return. However, partnerships and S corporations must still file a federal income tax return every year.

The table below shows the major federal tax and payment deadlines for small businesses.

Keep in mind that the table above shows only the major federal tax and payment deadlines. 

There may be other federal tax requirements based on your specific business—for example, if you own an indoor tanning salon, you’ll have to collect and remit the 10% indoor tanning services excise tax and file Form 720 quarterly.

And of course, your business may be subject to state and local tax filing and payment deadlines, as well.

How to manage your business taxes.

The first step in managing your business taxes is to determine what taxes you and your business are liable for, along with the filing and payment deadlines for these taxes.

To do this, set aside some time to understand the tax rules as they pertain to your particular business and make a list of all the taxes your business is subject to—whether income, self-employment, payroll, sales, or some other tax—along with the following information for each of these taxes:

• The tax return form
• The tax return form instructions
• The tax return deadline
• The tax payment deadline
• The tax payment instructions

Take the time to review each of these tax forms with their instructions and familiarize yourself with the process of completing the required returns and making the required payments.

I’d recommend that you make reminders to yourself of all the tax deadlines you have throughout the year, so you don’t miss them. And of course, when you see one of these tax deadlines coming up in your calendar, carve out time in your schedule to file the required return or make the required payment before that deadline.

Of course, this is easier said than done. If doing your own small business taxes sounds overwhelming, consider reaching out to a tax professional who can manage your business taxes for you, so you can focus on your business.

While a good tax professional won’t be cheap, they can take the headache out of the process for you and ensure that you avoid the nasty penalties that come with failing to comply with your business tax obligations.