An Essential Guide to Small Business Taxes:

Understanding business taxes is essential for your company’s success. This guide breaks down the fundamentals you need to know, best practices and the best virtual bookkeeper solutions you can use to help you stay compliant while focusing on what matters most – building your business.

Do Small Businesses Need to Pay Taxes?

Short answer: Yes, absolutely. The IRS is pretty clear about this one. According to their guidelines, you must file a federal income tax return if your net earnings from self-employment were $400 or more. That’s right – just $400.

If you earn less than $400 in net profit, you are not required to pay self-employment tax. However, if you have more than 13,850 total income, you will instead report the income in your personal tax return (2023 numbers). Even at this stage, it is a good habit to keep clear records of your income and expenses, so that you will not have a huge adaptation to do when your business grows

Here’s exactly when you need to file, straight from the IRS rulebook:

Your net earnings from self-employment are $400 or more
You operate your business as a corporation, regardless of income
You have employees (even if the business isn’t profitable)
You need to pay special taxes like excise tax

The good news? You only pay taxes on your profits (what’s left after your business expenses), not your total revenue. So if you made $5,000 selling crafts but spent $3,000 on materials, you’re only paying taxes on $2,000.

The Tax Basics You Need to Know

Think of taxes as your business’s contribution to keeping the lights on in your city. Depending on how you’ve set up your business, you’ll handle them differently.

If you’re running solo (that’s a sole proprietorship), you’ll report everything on your personal tax return. Working with partners? You’ll split the profits – and the tax responsibilities. And if you’ve formed a corporation, your business pays its own taxes.

Here’s the thing about self-employment tax: you’re now paying both sides of Social Security and Medicare taxes. It sounds scary (15.3% of your earnings), but remember you can deduct half of it. Not too bad, right?

Deductions: Don’t Leave Money on the Table

Every dollar you spend running your business could be a tax deduction. Think about your typical work week:

Working from home? That home office could be deductible. Driving to meet clients? Track those miles. Bought a new laptop? Write it off.

Just make sure you’re being honest about what’s actually for business. That Netflix subscription probably isn’t a business expense (unless you’re a film critic).

Pro tip: Save those receipts. Your future self will thank you when tax season rolls around. Modern tools can make this painless – snap a photo and get back to business.

When to Pay What

Missing tax deadlines is like missing rent – it’ll cost you extra. Here’s the rhythm you need to know:

Every quarter, you’ll need to pay estimated taxes. Think of it as paying-as-you-go instead of one massive bill in April. Mark these dates:

First quarter: Mid-April
Second quarter: Mid-June
Third quarter: Mid-September
Last quarter: Mid-January

A good rule of thumb? Set aside about a third of what you make for taxes. Better to have too much saved than too little.

Keeping Track of Everything

Nobody starts a business dreaming about paperwork, but good records make life so much easier. You don’t need anything fancy – just a reliable system that works for you.

The bare minimum:

Keep your business money separate from personal funds
Track what’s coming in and what’s going out
Store your receipts digitally for anything business-related – Use receipt scanners to avoid messy heaps of paper receipts
Log your business miles if you drive

These days, most people use their phones to scan receipts and track expenses. Whatever works for you is fine – just ensure you do it consistently.

Remember, running a business is challenging enough without tax stress. When in doubt, talk to a tax pro. The money you spend on good advice usually pays for itself in peace of mind (and deductions you might have missed).

Quick note: Tax rules change frequently and are different depending on where you live. Use this as a starting point, but chat with a tax professional about your specific situation.