Small business taxes: Everything you need to know

Running a small business is tough. As an entrepreneur, you need to develop great products or services, create a marketing strategy, hire the right team, and keep your customers happy. And if that isn't a big enough responsibility, you also need to deal with taxes.

The following tips can help.

Get an EIN number

Every business owner needs an Employer Identification Number (EIN)—even if you don't plan on hiring employees. The IRS assigned this nine-digit number, and you use it like a Social Security number when you file business tax returns, make tax payments, or open a business bank account.

Applying for an EIN from the IRS is free and easily done online. You provide some basic information about your business, and you'll receive your EIN immediately. If you prefer, you can also apply by mail by filling out Form SS-4, Application for Employer Identification Number.

For more information, be sure to check out our article, How to Get an Employer Identification Number.

Track business revenues and expenses

Keeping thorough and accurate records of your business's income and expenses throughout the year makes filing a tax return and paying the right amount of tax a lot easier. Without good records, you could miss out on valuable tax deductions or put yourself at risk for an audit.

Two simple steps can help:

1. Open a separate business checking account. Running all of your business's revenues and expenses through a separate business checking account makes it easy for you (or your accountant) to identify all business transactions.
2. Use accounting software. Every business should invest in basic accounting software and use it to track business income and expenses. Professional accounting software can ensure your books are always current and help you stay on top of outstanding invoices. For a small monthly subscription fee, you'll have a much better chance of spotting cash shortages or slow-paying customers than someone who just throws their receipts in a folder and deals with them at the end of the year.

For more in-depth advice, check out How to Open an LLC Bank Account and Bookkeeping Options for Time-Starved Startups.

Know how (and when) to file your tax return

The deadline for filing your small business tax return and the forms you use to report business income and deductions vary depending on your business structure.

Business structure

Tax form

Due date

Sole proprietorship or single-member LLC

Schedule C, Profit or Loss from Business

April 15

Partnership or multiple-member LLC

Form 1065, U.S. Return of Partnership Income

March 15

S Corporation

Form 1120-S, U.S. Income Tax Return for an S Corporation

March 15

Corporation

Form 1120, U.S. Corporation Income Tax Return

April 15

Those deadlines can change if your business has a fiscal year-end or the deadline falls on a weekend or holiday. For more information on tax forms and deadlines for your small business, check out How to File Business Taxes for Your Small Business.

Claim tax deductions and tax credits

Claiming available tax deductions and tax credits can lower your taxable income and the amount of tax you pay. The key is to know what you can claim.

A tax deduction lowers your taxable income, while a tax credit is a dollar-for-dollar reduction in the amount of tax you owe. The deductions and credits you can claim depend on what type of business you're in. For more information, check out 10 Key Tax Deductions for Your Small Business and Big Tax Breaks for Small Businesses.

Pay estimated taxes

All taxpayers are required to pay taxes on the income they earn, and the IRS expects to receive those taxes as income is earned rather than at the end of the year when you file your tax return. For small business owners, this usually means making estimated tax payments.

Generally, if you expect to owe tax of $1,000 or more, the IRS requires you to pay at least 90% of your tax due for the current year or 100% of the tax due with your prior year return, whichever is smaller. Otherwise, you may have to pay an estimated tax penalty.

Estimated tax payments are generally due on April 15, June 15, September 15, and January 15 of the following tax year. For more information on calculating and paying estimated tax payments, check out our article, How to Pay Quarterly Taxes.

Get help from a professional

If your taxes are relatively straightforward, you keep good records, and don't mind taking time to research tax rules, filing taxes on your own might be an option. But working with a qualified tax professional offers several benefits.

A good accountant doesn't just file a tax return. They provide proactive advice to help you save money, grow your business, and head off future tax problems. Working with a qualified professional costs money, but it's a small investment compared to the impact they can have on your business.