Taxes are tricky enough for most individuals, but even trickier as a small business. We here at Outright understand, and want to ease the pain and make a little better sense of it all. Keep in mind, however, we are not tax professionals so we encourage you to contact an accountant for more clarity.
For starters, there are three major types of taxes that our small business customers generally have to deal with:
Federal Taxes can be broken down in the following way:
Estimated Taxes – due 4 times a year according to the IRS timeline and submitted with Form 1040-ES
Calculated aa a marginal tax rate (think ‘sliding scale’) on your company profit (income less expenses). Estimated taxes can be paid electronically through the Electronic Federal Tax Payment System (EFTPS) or by mailing them to the same address where you submit your annual taxes. When using Outright to record payments be sure to follow these procedures.
Self-Employment Taxes – consist of Social Security and Medicare contributions
As a W-2 employee (a “day job”) you are required to contribute to Social Security and Medicare. These are usually deducted directly from your paycheck. The employer also makes contributions on your behalf. A self employed person plays the role of both employee and employer and is therefore required to contribute both sides.
Social Security 4.2% 6.2% 10.4%
Medicare 1.45% 1.45% 2.9%
Total Contribution 13.3%
Annual Taxes – submitted annually by April 15th (or the next business day following 4/15)
Self-employed individuals (sole – proprietors and single-member LLC’s) are required to submit a Form Schedule C (for their business) along with their individual Form 1040. This tracks the income and expenses from the business and determines the overall tax liability.
State Taxes are due annually but some states also require periodic estimated state tax payments. And a few states don’t have state income tax at all. Because of the large number of states, and therefore combination of requirements, Outright is not designed to automatically calculate your state taxes. You can use Outright to track your income, expenses and profit though, so you should have all you need to calculate it manually.
Sales Taxes can be even trickier, so we have an article specifically covering all the details.