Small Business Taxes for Beginners & New LLC Owners

all right so let's chart this out step one I'm gonna go through the type of taxes subject to sole proprietorship single member LLCs partnership Locs S corporation and C corporations when it comes to individual income taxes everyone pays it except for C corporations with self-employment taxes s corporations can avoid some of them not all but some small business taxes for beginners let's get into it because there has been a record-breaking number of llc's created in the last two years according to U.S business formation statistics and unfortunately a lot of new business owners have no idea how their taxes work because the game changes once you become self-employed because you no longer have an employer who is paying and filing your taxes on your behalf like your federal and state taxes or your Social Security and Medicare taxes now all those tax payments fall on you but you're in luck because if you watch watch this video Until the End then you'll have a deep understanding of small business taxes for beginners I'll jump into topics like the different types of small business taxes how to pay taxes for LLC and other entity owners and common tax deductions and credits that you should know about and much more so I hope you're excited to learn now really quick before I dive in I want you to know two things number one I'm gonna go ahead and put the timestamps for this video somewhere down in the description below so at any point in the video you can skip ahead or reference something again if you need to and number two it really would help me out if you like this video for the YouTube algorithm that way other new small business owners like yourself can find this video foreign let's go ahead and dive in with number one the types of small business taxes so remember as an entrepreneur you are responsible for paying your taxes now so then of course it makes sense to know which taxes you need to pay and which taxes you don't need to pay now almost all taxes can be divided into three buckets okay taxes on income you earn taxes on what you buy and taxes on what you own let's start off by first talking about the type of taxes you pay on money that you earn because these are your biggest taxes and as soon as you make some money Uncle Sam is going to be looking for their cut since you made it on U.S Turf so to speak all right now up first is the individual income tax this is the one that most people should be familiar with it's where your tax rate increases as your income increases because here in the US we have what is called a progressive tax system and so every year the IRS release assist new tax brackets which I'll put up on the screen right now for 2022. now as a business owner you are still subject to these tax brackets and tax rates if you have a pass-through business entity like an LLC S Corp or simply a sole proprietorship so it is very important that you understand where your income may fall as it helps you to predict your tax liability now if you want a deeper explanation on this then I highly recommend you watch my video on taxes for beginners where I break down the progressive tax system with examples and much more detail than I will in this video also I'm going to break down how to pay these taxes as a small business owner and the next point but for now let me keep going through the different types okay the next common business tax is the corporate income tax the only type of business entity that is not subject to individual income taxes are C corporations and that's because C corporations pay a flat federal tax rate currently set at 21 for 2022 and pay a flat state a corporate tax rate which depends on the state that you do business in now before you start thinking well okay I want to see Corporation hold on here's a quick Pro tip Okay C corporations are subject to double taxation because the profits that are taxed must remain in the C corporation and so if you as the business owner decide that you want to pay yourself then you still could be subject to other tax rates so C Corps can be a bit tricky and something you should definitely consider talking to a Tax Advisor about which by the way if you need help with tax planning or tax preparation we may be able to help go ahead and click the first link down in the description below to learn more about how our services work okay so now that you know about income tax and corporate tax let's talk about another popular tax for business owners payroll taxes so if you have any employees you must report and deposit federal income tax withholdings Social Security and Medicare taxes where you pay half and your employee pays half and federal unemployment taxes and sometimes people ask me Sean should I look for a W-2 employee or a 1099 contractor and of course number one always do what's best for your business but as you can see you can actually end up paying more taxes when you hire W2 employees because some of the tax payments fall on you as the business now I'm not suggesting that means you shouldn't hire employees because there are a lot of fantastic benefits of having someone who is solely dedicated to your business but that's just the tax consequence of it now closely following payroll taxes you have self-employment taxes this tax is specifically for those who are taxed as LLC owners General Partnerships and sole Proprietors this is where the IRS is basically telling you hey since you don't have an employer who is paying your share of Social Security and Medicare taxes that you need to pay both of them because once again when you are employed you typically will pay half of your your Social Security tax which is 6.2 percent and half of your Medicare tax which is 1.45 but now you need to handle all of it which brings the self-employment tax rate to 15.3 percent now here's another Pro tip once you start to make enough income it could make sense to elect to be taxed as an S corporation because s Corps don't pay self-employment taxes on their distributions however becoming an S corporation can be expensive and require more from a business owner which is why it makes sense to wait until you have a considerable amount of net profit I would say at least sixty thousand dollars in net profit before you consider electing to become one so those are some of the biggest taxes when you earn as a business owner now let's quickly talk about some taxes on things you buy now the two that I have don't apply to every business so I won't go into much detail all right so first up you have sales tax you've probably seen this before print it out at the bottom of your store receipt after you purchase a good or a service sales taxes are a tax on retail sales and typically something that the state wants to collect now if you own a retail business the good news is this tax is passed off to the consumer and it's just something that your business is responsible for collecting okay another type of buy tax is the excess tax this is a niche type of tax that applies to certain types of goods like tobacco alcohol soda gasoline and so on so if you're thinking about getting to that market make sure you take note of the excess tax all right shifting gears to taxes on things that you own of course you have property taxes this tax is applied to immovable property like land and buildings and states with property taxes and most people have a good handle on this but it is something I have to mention if you're a business owner and you're thinking about purchasing some real estate for your company now another type of owner tax is the tangible personal property tax or TPP this is a state tax that applies to property that can be moved or touched like business equipment machinery inventory furniture and vehicles so if you own a vehicle then you've probably seen something like an avalorian tax assess when you renew your registration now about 43 States currently have TPP okay so those are the main taxes you may encounter as a small business owner depending on your business or entity now let's move on to the second part of this video and talk about number two how to pay business income taxes so there are only about three to four basic steps you need to follow step one figure out the taxes you need to pay which I'll simplify step two calculate how much you need to pay step three pay your taxes and then step four file your tax return simple all right so let's chart this out step one I'm gonna go through the type of taxes subject to sole proprietorship single member LLCs partnership Locs S corporation and C corporations when it comes to individual income taxes everyone pays it except for C corporations with self-employment taxes s corporations can avoid some of them not all but some and corporations avoid them all together the next type of tax are payroll taxes and this applies that every business that has W-2 employees and always applies to S corporations since owners must pay themselves a reasonable salary and the corporate tax rate of course only applies to C corporations and on the chart I've listed what tax returns these taxes are reported on for example single member LLCs use 1040 individual tax return and attached Schedule C whereas multi-member llc's must file an information return called the U.S 1065 return and then report their income on U.S 1040 using a tax form called K wines all right so that's step one figure out where you fall and what income taxes you need to pay once you have that then you move on to step number two and calculate how much you need to pay so here's the thing since you are no longer an employee instead of you withholding taxes on every paycheck now you're going to need to pay every quarter in what is known as a quarterly estimated tax payment which can be calculated by simply taking the total taxes you owe plus the total self-employment taxes you owe which gives you your total estimated taxes and then divide that by four to figure out exactly what you need to pay every quarter so if you need help getting to those numbers then I would suggest simply Googling and finding an online calculator or simply pay 110 of what you owed in the previous tax year to avoid any penalties now I also will put up on the screen the quarterly estimated tax deadlines for 2023 and as you can see you have roughly 15 days after the typical calendar quarter ends to pay your taxes now out it is important to know that you don't have to make quarterly tax payments or you fail to do so on time then you can get hit with what is called an estimated tax penalty which is like the irs's late fee if you will and this fee along with others can be avoided if you simply pay your taxes on time now once you know how much tax you need to pay then you can move on to step three and pay your taxes which you can do by simply going to irs.gov backslash payments log into your account and select make a quarterly payment from there you can choose to use your bank account or any debit card credit card or digital wallet like PayPal to make your payment and then finally step four is to file your tax return so you report all your income and all your payments to the IRS all right now let's move on to the third part of this video and talk about some of my favorite things which is number three business tax deductions because business owners in my opinion have the best tax advantages because as long as you place smart you can significantly lower your tax bill sometimes all the way down to zero like the rich and wealthy if you use the tax code to your advantage and take certain business tax deductions a business tax deduction is an expense a business can claim in an effort to reduce their taxable income and since there are many unique types of businesses that IRS considers a business expense deductible as long as it is ordinary and necessary to the company an ordinary expense is something common and accepted in your type of business in a necessary expense is something that is helpful and appropriate for your business so if you use your imagination that can be a lot of things but some tax write-offs are very common like employee expenses the cost of hiring wages benefits and even writing off taxes like payroll taxes travel expenses airfare hotel stays meals office expenses rent utilities supplies advertising you equipment expenses purchasing certain assets like machineries vehicles and even planes just to name a few and since businesses help stimulate the economy many states offer specific business credits which helps reduce business owners tax liabilities dollar for dollar popular credits are the research and development tax credit credits for hiring veterans and other employees credits for developing your business in a certain Zone city or county and so on we have a lot of videos on this channel that talk about tax write-offs and credits so make sure you're subscribed if you haven't already let's go ahead and move on to the fourth part of this video and talk about number four staying compliant staying compliant with the Internal Revenue Service the IRS means following all applicable tax laws and fulfilling your tax obligations as a business owner and listen if you are not found compliant with the IRS you could cause yourself a lot of unnecessary pain for example you may find yourself paying a additional fees and penalties you could find yourself getting and losing tax audits you could lose your status as an LLC owner which offers many legal liability protections so how do you stay compliant here are six tips number one follow the rules of your LLC LLC is a governor by state law and each state has its own set of rules for llc's so make sure you understand them and you follow them which may include some requirements like maintaining records holding meetings or electing members and managers number two keep accurate and organized records AKA bookkeeping this will make it easier for you to stay compliant and helpful in the event if you're ever audited number three fulfill your tax obligations this includes filing your tax returns paying your taxes and sending the appropriate tax forms when necessary number four follow employment laws if you have employees it is very important that you understand and you comply with employment laws including laws related to minimum wage overtime and discrimination number five protect consumer privacy if you collect personal information from your customers or clients it's very important that you protect our privacy and you follow the applicable laws related to data and privacy protection in the number six obtain any necessary licenses and permits depending on the nature of your business and the location of where you operate you may need to obtain certain licenses and permits in order to legally conduct business so make sure you understand what licenses and permits are required for you and then make sure you take the necessary steps to obtain them and renew them all right so we covered a lot here and if you understand all that congratulations you are now in good shape to understand and manage your business taxes but there is one more advanced topic I didn't get to cover which is IRS receipt requirements and how to substantiate any tax deduction that you decide to take so you're definitely going to want to watch this video coming up next to get a clear understanding of what is required from you as a business owner and I'll see you over there

Channel: LYFE Accounting

Views: 56,670

Keywords: lyfe accounting, small business taxes, small business taxes for beginners, small business taxes for LLCs, small business taxes for new llc, small business taxes for startups, taxes for llc, how to do small business taxes, small business taxes 2023

Id: Rz0l57A2iEk

Length: 16min 6sec (966 seconds)

Published: Mon Jan 23 2023