Tax Time

Tax Time

More often than not, small business owners can put themselves out of business or get into a lot of trouble because they aren’t prepared come tax time. If your small business isn’t making a profit, (hint: you’re expenses are more than your sales) you won’t be paying taxes. If you’re business IS making money (congrats!) you’ll be paying taxes on your net income. Revenue – Expenses = Net Income.

A good rule of thumb is to put 35-40% of your net income in savings so you are ready at tax time. The current Self Employment Tax is 15.2% and you also need to save for your state and federal income taxes. When your business makes more money, obviously the percentage of income tax also increases. If you save around 35-40%, you’ll be much more prepared when it’s time to pay.

Estimated income taxes are due quarterly:

For the period of:                         Date Due:
January 1- March 31                   April 15
April 1 – May 31                          June 15
June 1 – August 31                     September 15
September 1 – December 31      January 15
Sole proprietors, partners, and S corporation shareholders - You generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return. Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay your estimated tax. For additional information, refer to Publication 505, Tax Withholding and Estimated Tax.
Corporations - You generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return. Use Form 1120-W, Estimated Tax for Corporations (PDF), to figure the estimated tax. You must deposit the payments. For additional information, refer to Publication 542, Corporations.
You can pay estimated tax by check or money order using the Estimated Payment Voucher. You can also pay estimated tax electronically using your credit card or debit card, Electronic Funds Withdrawal (EFW), or Electronic Federal Tax Payment System (EFTPS).

Read more about estimated income tax in Publication 505 on the IRS website and schedule a meeting with your CPA before these deadlines to make sure you are submitting the correct paperwork. You can find more information about the tax calendar and forms at the IRS website.

Big, huge disclaimer: Chic CEO & all of its partners are not qualified to give you tax advice. When it comes to your personal and business taxes, seek the advice of a professional accountant or CPA.


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