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As a small business, you must pay city and state excise taxes on your gross sales, federal--and sometimes state and local--income tax on your net income, and employment taxes on your payroll. State and federal tax payments are usually due when you file, but you need to pay federal income and employment taxes throughout the tax period, even though you may only need to file tax forms quarterly or annually. If you stay current on your payments and file your tax forms on time, you can avoid costly penalties and stressful hassles. |
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Step 1 Register your business with state and local agencies before you start operating, and register with the IRS as an employer if you intend to hire employees. These agencies that will then send you tax forms at scheduled intervals. Complete and return these forms with payment, when applicable. Step 2 Keep detailed records documenting your income and expenses. Save receipts for purchases, and keep copies of sales receipts and cash register records. Separate your income into categories listed on your state excise tax form, such as retailing and wholesaling, and divide your expenses according to the categories listed on IRS Form Schedule C, such as rent, supplies, and labor. Enlist the help of an accountant to help you set up your bookkeeping system to easily provide the information you need to complete your tax forms. Step 3 Calculate federal employment taxes by multiplying each employee's gross wages for the payroll period by 0.0145 for Medicare, and 0.062 for Social Security. Use federal tax tables to determine income tax deductions for each employee paycheck. Set aside these amounts, along with your matching employer's contribution for Social Security and Medicare. Deposit these sums in the bank according to the deposit scheduling requirements that the IRS provides for your business. Use the federal tax employment tax deposit coupons that the IRS sends you in the mail. Step 4 Estimate your personal federal income tax liability by subtracting your business expenses for a given period from your gross business receipts for that time frame. Multiply your estimated net income by .153 to estimate your Social Security and Medicare taxes. Estimate your income tax using federal tax tables. If you have paid business income tax during the previous year, base your quarterly payments for the current year on your previous year's payments. Mail your estimated tax payments to the IRS quarterly, along with the estimated tax payment coupons that you will receive in the mail. If you do not receive estimated tax deposit coupons in the mail, you can find them on the IRS website. Step 5 Consult an accountant or paid tax preparer if you have questions or concerns about completing your tax forms and paying your small business taxes. Even if you feel confident handling your own tax forms, it is always a good idea to have a professional review your paperwork periodically. |
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