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Tax implications that small business owners must consider

On Behalf of | Aug 26, 2022 | Tax

Small businesses have similar tax concerns as corporations even though the dynamic is different and applies on a much smaller scale in many cases. All new startup entrepreneurs in Virginia should calculate taxes into their budget when conducting any feasibility study before opening instead of learning the requirements after the fact. For small business owners, there is much more to understand than merely paying a percentage to the state and federal governments based on company profits.

Payroll taxes

One of the first issues for small businesses will be payroll taxes, which is a fundamental business law element of operating a business of any type. All money deducted from employee wages must be paid quarterly to the Department of the Treasury, the Social Security Administration, and to the Virginia Department of Taxation.

Reporting to employees and contractors

While employees who have taxes deducted from their checks receive itemization with their pay receipts, many companies that use contractors are only required to report earnings annually to their associates. Contractors are considered independent workers and are liable for their own tax obligations. Employees will receive W-2 statements at the end of the year on the same schedule as contractors who receive W-4 earnings statements from the company.

Business tax payments

All businesses are required to file tax returns at the end of the year just as required of workers, but there is an unexpected business legality many do not realize when opening their operation. That requirement is estimated quarterly tax deposits that will go toward their total tax liability at the end of the year. Those who expect to make any profit must pay every three months during the year by the 15th of the month following the end of the quarter.

Along with paying taxes, it is important for all business owners to also get educated regarding what tax deductions are also allowed for their company. Lowering the tax bracket is important for long-term success, and it is often best accomplished with keeping meticulous records of expenditures on a daily basis. Additionally, it is important to meet all reporting and payment deadlines to avoid a late payment penalty.

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Attorney Harvey S Lutins