What are the most common taxes that small businesses pay?
As an ecommerce shop owner, it’s important to understand the various taxes that your business may be subject to. Some of the most common taxes that small businesses pay include:
Income tax
Income tax is a tax on the profits of your business. It is typically paid on a quarterly basis and is based on your business’s net income.
Payroll tax
Payroll tax is a tax that is paid on the wages and salaries of your employees. As an ecommerce shop owner, you may be responsible for withholding and paying payroll taxes on behalf of your employees.
Self-employment tax
If you are self-employed, you may be responsible for paying self-employment tax, which covers your contributions to Social Security and Medicare.
Capital gains tax
If you sell assets such as stocks or property for a profit, you may be subject to capital gains tax.
Property tax
If your ecommerce shop owns or leases property, you may be responsible for paying property taxes on that real estate.
Dividend tax
If your ecommerce shop pays dividends to shareholders, you may be subject to dividend taxes.
How to file small business taxes
When it comes time to file your small business taxes, it’s important to be organized and prepared. Here are some steps to help guide you through the process:
1. Collect your records
Gather all of the necessary financial records for your business, including income statements, expense receipts, and any other relevant documentation.
2. Find the correct form and fill it out
Depending on the structure of your business, you will need to find the appropriate tax form and fill it out accurately.
3. Know the filing deadlines
Be aware of the filing deadlines for your business taxes, including any potential extensions that may be available to you.
Tax extensions
If you need more time to file your taxes, you can request an extension. However, it’s important to note that an extension to file is not an extension to pay any taxes owed.
4. File your small business taxes
Once you have completed the necessary forms and gathered all of your records, it’s time to file your small business taxes.
Small business tax best practices
There are several best practices that ecommerce shop owners can follow to ensure that they are managing their taxes effectively. Some of these best practices include:
Keep your bookkeeping up to date
Utilize tools such as Expensify, Evernote, or Shoeboxed to help keep your business’s financial records organized and up to date.
Understand sales tax requirements
Be aware of the sales tax requirements in the states where you have nexus and ensure that you are collecting and remitting sales tax appropriately.
Find the right accountant
Working with an experienced accountant can help ensure that your business is taking advantage of all available tax deductions and credits.
Common tax deductions for small businesses
There are a variety of tax deductions that may be available to ecommerce shop owners. Some common tax deductions for small businesses include:
Business property
You may be able to deduct expenses related to the upkeep and maintenance of your business property.
Home office
If you operate your ecommerce shop out of a home office, you may be eligible to deduct a portion of your housing expenses.
Calculating home office deductions
There are two methods for calculating home office deductions: the simplified method and the regular method. Consult with a tax professional to determine which method is best for your business.
Office supplies
Expenses related to office supplies, such as paper, ink, and other materials, may be deductible for your business.
Education
Costs associated with continuing education or professional development for you or your employees may be deductible.
Phone and internet bills
If you use your phone and internet for business purposes, you may be able to deduct a portion of these expenses.
Web hosting and online store themes
Expenses related to maintaining your ecommerce website, including web hosting and the purchase of online store themes, may be deductible.
Contractor work
Amounts paid to independent contractors for services rendered to your business may be deductible.
Employee salaries
The salaries and wages that you pay to your employees may be deductible as a business expense.
Shipping costs
Expenses related to shipping products to customers may be deductible for your business.
Vehicle use
If you use a vehicle for business purposes, you may be able to deduct a portion of the associated expenses, such as gas and maintenance.
Online service fees
Costs associated with using online services, such as payment processing or email marketing platforms, may be deductible.
Equipment
Expenses related to the purchase or maintenance of business equipment, such as computers or machinery, may be deductible.
Travel expenses
Costs related to business travel, such as airfare, lodging, and meals, may be deductible for your business.
Professional services
Fees paid to attorneys, accountants, or other professional service providers for business-related services may be deductible.
Advertising and marketing
Expenses related to advertising and marketing your ecommerce shop, such as social media ads or email campaigns, may be deductible.
Until next tax season
Now that you have a better understanding of the tax considerations for ecommerce shops, you can begin implementing these best practices to ensure that your business is well-prepared for the next tax season.
How to file small business taxes FAQ
Do small businesses have to pay taxes?
Yes, small businesses are generally required to pay taxes on their profits, employee wages, and other relevant expenses.
How do small business taxes work for an LLC?
LLCs are typically considered pass-through entities for tax purposes, meaning that the business’s profits and losses are reported on the owners’ personal tax returns.
How do small business taxes work for an S corp?
S corporations are also pass-through entities, but they may be subject to different tax rules and requirements compared to other business structures.
How much should a small business put away for taxes?
It’s recommended that small businesses set aside a portion of their income for taxes, typically around 25-30% of their profits, to ensure that they are able to cover their tax obligations when they come due.