Beyond the Numbers

Navigate the Small Business Tax Maze

Small business owners face a continual headache dealing with government mandates for a jumble of federal, state and local taxes. Complying means endless paperwork, ongoing deadlines and ever-looming threats of audits and penalties. Here are some of the most common twists and turns in the small business tax maze.

Employee requirements

Employers must withhold federal income tax from employees’ wages based on their W-4s and the applicable withholding tables provided in the Employer’s Tax Guide on the IRS website. You must also withhold Social Security (FICA) and Medicare taxes from each employee’s wages and pay matching amounts out of pocket. Finally, you must pay Federal Unemployment Tax (FUTA) for your employees, entirely from your own funds.

FICA and Medicare taxes (employer and employee portions), as well as federal income tax withheld, must be deposited either monthly or semi-weekly, depending on the amounts involved. FUTA deposits are required for each quarter wherein the cumulative tax exceeds $500.

To report federal income tax withheld, Social Security and Medicare taxes, most businesses must file Form 941, Employer’s Quarterly Federal Tax Return. FUTA is reported annually on Form 940, Employer’s Annual Federal Unemployment Tax Return. You also must complete Form W-2, Wage and Tax Statement, annually for each employee and transmit copies (with Form W-3, Transmittal of Wage and Tax Statements) to the Social Security Administration. Additional copies must be provided for state and local tax departments and each employee.

Self-employment

Sole proprietors, general partners, independent contractors and others who work for themselves must report self-employment tax to cover their Social Security and Medicare. They must also make quarterly estimated tax deposits to cover their expected self-employment and individual income tax liabilities.

State and local

As if the federal requirements weren’t enough, each state also has individual requirements for reporting and paying taxes. These may include state income tax due and withheld, state disability insurance, state unemployment insurance and sales tax. Local governments such as counties and cities can often levy their own taxes (including property, business license and gross receipts), which have separate reporting and payment requirements.

Make managing your taxes easier

To keep track of your obligations, create a calendar that maps out each tax-related deadline that applies to your particular business. It’s also worth writing out simplified procedures for submitting required reports, computing taxes and making payments.

Given the complexity of small business taxes, the best bet is to get the guidance of a professional to help you with the computing and reporting process. Call for a review of your tax calendar and procedures, or if you have any questions.