I'm Darrin Mish. For 32 years I've practiced federal tax litigation \u2014 routine audits, Tax Court cases, and everything in between. If you're facing an IRS issue, here's what you need to know first.<\/p>\n
With so many Americans losing their jobs, a vast majority of them have started their own business. These ones quickly find out that having a business of their own entails lots of tax knowledge, something they never came across when they were in someone else\u2019s employment. They now realize the added responsibility they have being business owners. They now need to look into twice the amount of Social Security and Medicare taxes that they paid when they were employed. Now as business owners, they do not pay tax once a year like before, now it\u2019s every quarter.<\/p>\n
No matter how small your business might be, it pays to consult a professional like an accountant to advise you about your tax and accounting obligations. It would also be imperative that you invest in some good accounting and tax software right from the start of your business. Do not think that you can handle bookkeeping and accounting manually all by yourself until your business grows bigger. These things have a habit of getting out of hand sooner than you think.<\/p>\n
Here is a crash course on small business taxes to help you familiarize yourself with this.<\/p>\n
Estimated Payments<\/p>\n
This is the quarterly taxes you have to pay which is taken from the withholding tax from your employees\u2019 salaries. To simplify this process, you are advised to set aside between 30% and 40% of your revenue for estimated payments. Although this might be quite a substantial chunk of your earnings, it is better to set this amount aside consistently otherwise, you would have no funds to pay your taxes come April.<\/p>\n
If you fail to set aside the estimated payments, you may end up having to take a loan to cover your tax payments and this is never a good business practice. Loans should be used to generate more revenue not pay off debts. Failure to remit your quarterly estimated payments would also subject you to interest charges by the IRS.<\/p>\n
The most practical way to go about paying this quarterly tax is to set up a separate account for it. Do not leave your money all in a checking account as you would likely spend it in the course of business.<\/p>\n