Small Business Tax: Basics
What is a "small business"?
When talking about small businesses, they can really range in form from a sole proprietorship, which is a single owner, unincorporated, to a corporation with 100 employees. Form is unique to the situation at hand - perhaps the nature of the business, perhaps whether employees are on board or not, perhaps the liability involved with the business. In my view a business with less than 100 employees, and less than $100 million or so in sales, would be qualified as a small business. Having said that, some people may feel that a business with $100 million in sales is anything but small.
What does "self-employed" mean?
You may be self employed if you hold out your services to many people or work for many people. Self employed people also generally extend those services on an intermittent basis other than a full time 40 hour week. If you are self-employed you may have an opportunity to deduct business expenses against the gross income that you earn.
What are the tax implications of being self-employed?
If you're self-employed, you'll generally pay taxes on a quarterly basis. Employees have taxes withheld from their salary, but self-employed people don't. The self-employed generally remit tax payments quarterly with coupons to both the federal and state taxing authorities. And the onus is really on the self-employed person to figure out what tax they owe and that is based on their net income, what they actually collect from their clients, less the expenses that they have that are deductible.
Do I have to file taxes for my business in addition to filing as an individual?
Generally speaking, if you have a small business and you're a sole proprietor, meaning you're not incorporated, you would report the results of your operations, your income and expenses, on a Schedule C with your federal tax return. Generally, you do have to account for your business income and expenses separately, and that inclusion is with the personal tax return; the tax is actually paid with your Form 14. If you're self-employed and you have a separate business entity like a partnership, a limited liability company, or corporation, you'll generally have to file a separate return for that entity. Partnerships and LLCs are usually due by April 15th, just like your individual tax return. Corporations are generally due March 15th. You can request a six-month extension to file.
