Taxes That Need To Be Paid By Small Businesses

The Self Employment Tax

A self-employed person has to file additional taxes besides their income tax. This usually amounts to an extra 15.3% burden for small business owners. This is because employers and employees each pay 7.65% for both Social Security and Medicare taxes, so a self-employed individual will have to pay the full amount.

There Are Other Taxes Besides Income Taxes

Businesses pay more than just income taxes. They include the following:

  • Employment taxes on wages paid to employees and to the owner (you). 
  • Social Security
  • Medicare tax 
  • Federal unemployment tax (FUTA)

Social Security tax is 12.4 percent of all wages paid up to $137,700, with half paid by the employee and half paid by the employer. Medicare is equal to 2.9 percent of wages paid (3.8% on wages in excess of $200,000 ($250,000 for joint returns, $125,000 for married taxpayers filing a separate return), half paid by the employee, and half paid by the employer. FUTA is generally equal to 6 percent of the first $7,000 of each employee’s wages and is paid by the employer. Self Employed owners will have to pay a total amount of Social Security taxes and Medicare taxes since there is not a separate employer to pay it for you.


Small businesses should take advantage of the many business deductions available to small businesses to counteract this tax burden.

These include:

  • Travel by airplane, train, bus, or car between your home and your business destination. (If you’re provided with a ticket or you’re riding free as a result of a frequent traveler or similar program, your cost is zero.)
  • Fares for taxis or other types of transportation between the airport or train station and your hotel, the hotel, and the work location, and from one customer to another, or from one place of business to another.
  • Shipping of baggage, and sample or display material between your regular and temporary work locations.
  • Using your car while at your business destination. You can deduct actual expenses or the standard mileage rate, as well as business-related tolls and parking fees. If you rent a car, you can deduct only the business-use portion for the expenses.
  • Meals and lodging.
  • Dry cleaning and laundry.
  • Business calls while on your business trip. (This includes business communications by fax machine or other communication devices.)
  • Tips you pay for services related to any of these expenses.
  • Other similar ordinary and necessary expenses related to your business travel. (These expenses might include transportation to and from a business meal, public 

Just make sure that you follow guidelines and do not over deduct.

It Is Never Too Early To Plan For Taxes

It is true that 2020 was a year that had a lot of personal challenges for small businesses. However, understanding your tax liability for the coming year is always a good idea and it is never too early to start. There is no reason that taxes need to be a mystery and you can forecast what you will owe in the coming year.

If Your Business Is A C-Corporation

A business that is not a pass-through entity is a C-corporation. These are usually larger companies that do not qualify as small businesses.  However, if your business is a c-corporations it will now be taxed at a flat rate of 21 percent. Remember that c-corporations are always taxed twice. That is because the c-corporation itself is looked upon as a separate entity. These entities are taxed at the business level and the shareholder level.

Business Organization

Are you sure that you have chosen the proper business organization? The type of organization has a strong bearing on your tax structure and you should make sure your organization utilizes the best tax structure for your business needs. Having a small business tax professional look over the Consumer Price Index is a good way to understand your business should be properly structured.

What is a business entity?

One or more natural persons create a business entity to carry on a trade or business. Business owners often favor corporations and LLCs because they offer several layers of protection for their owners.

The following are types of business entities:

  • Limited liability company: A registered business with limited liability for all members
  • Professional limited liability company: An LLC structure for professionals, such as doctors and accountants
  • C-corporation: An incorporated business composed of shareholders, directors, and officers
  • S-corporation: An incorporated business that is taxed as a pass-through entity
  • Professional corporation: A corporate structure for professionals, such as doctors and accountants
  • B-corporation: A for-profit corporation that is certified for meeting social and environmental standards
  • Nonprofit: Corporations: A formed primarily to benefit the public interest rather than earn a profit.

Independent Contractors

Are you confident that your independent contractors have not become employees during the tax year? Did you provide them with the right forms? Businesses need to understand how to properly document all those who have done work for them and the Internal Revenue Service or IRS regulations on such matters can be very perplexing.

Remember The Quarterlies

Since self-employed owners do not get taxes withheld from their paycheck, it is a good idea to withhold the correct amount and send the Internal Revenue Service quarterly payments. This is particularly important if your tax liability is over $1.000. Ignoring quarterly payments could result in costly interest payments or penalties.

Getting A Tax Resale Certification Is One Of The Best Things You Can Do As An Entrepreneur

If you decide to start a business, a tax resale certificate can really save you money on taxes.

In short, a tax retail certificate allows you not to pay sales tax on items that you plan to resell. This can also apply to supplies that are going to be used in products that you will resell, such as wood for a cabinet.

However, the process can be difficult and the rules are different for each state. That is why TaxResaleCertificate should do all the hard work for you. We can make sure that you get all the advantages of a tax resale certificate without having to deal with the hassle of government red tape. Let us handle the hard stuff so you can proceed to run your business with confidence. Make sure you check out our second blog in this series so you can learn even more valuable information about tax resale certificates.