By Anwuli Chukwurah
It’s a lot better to prepare for them than to get a surprise tax bill.
Taxes. They’re a necessary part of doing business, and you need to make sure you’re aware and are planning for when you’ll eventually have to cough up the money you owe the government. Tax planning is an essential part of running your business, and you need to ensure you save a portion of your net income every month when the payments are due. This post is not for non-profits — except for your annual 990 filing to let the government know you’re still alive as an organization and you won’t owe the government money.
Here are the five most common paid taxes by small business owners:
- Income Tax
- Sales Tax
- Payroll Tax (includes Unemployment Tax)
- Franchise Tax
- Property Tax
Income Tax
- Frequency: Annual
- Mandatory: Yes
This annual tax is due in March (for corporations) or April for everybody else. Work with a CPA to ensure you’re paying the right amount and you’ve taken advantage of any deductions. If you’re an LLC, your business income tax is filed with your personal income tax. Yes, just because you have a business doesn’t mean you get out of filing your own personal taxes. I’m not a tax accountant, so I always refer clients to a CPA.
Sales Tax
- Frequency: Annual/Quarterly/Monthly
- Mandatory: Depends on the business industry
For sales tax, I suggest you call your local sales tax office for answers. If you have no idea if you’re supposed to pay sales tax, call the local office to get a quick answer. It will save you hours scrolling through Google. This can be a cumbersome thing to figure out, depending on where you make sales. The last time I called the local office, they were very helpful and answered all my questions — no matter how stupid I thought they were. If you’re a bigger corporation, you can also work with sales tax firms or use software that tracks sales tax payments to make sure things are aligned and filed correctly.
Payroll Tax
- Frequency: Quarterly/Monthly
- Mandatory: Yes
If you have full-time W2 employees, you must file and pay payroll and unemployment taxes. A payroll system such as Gusto will remove the stress from these filings. Make sure you’re registered with your state’s Workforce Commission so you can connect your tax account number with your payroll system so all payments can be correctly allocated.
Franchise Tax
- Frequency: Annual
- Mandatory: Yes
Everyone is required to file the Franchise Tax report. The threshold for Texas is $2,470,000 in revenue, and even if you don’t have that revenue, you’re still required to file the Public Information Report or Ownership Information Report. If your company issues shares, your franchise tax report can use your share counts and amounts—this is easier, especially if you use a cap table software such as Carta.
Property Tax
- Frequency: Annual
- Mandatory: Depends on if you own property
If you owe any property, you’re required to pay property tax. Properties include land, buildings, and any improvements you’ve made. It also includes tangible personal property used in the “production of income,” such as furniture, inventory, machinery, supplies, etc. Due dates vary based on county, so call your local office to confirm the date.
So, if you don’t want to be hit with a tax bill that the government thinks you owe them, be proactive with your filings. There’s nothing more shock-inducing than getting a bill for $100K when you know that number couldn’t be right. Also, form a relationship with a CPA (Tax Accountant) at the beginning of your business so they can make sure you pay the right amount of taxes and show you how to achieve that as a business.
About the author:
Anwuli Chukwurah is a versatile finance professional with a track record of starting new finance organizations and scaling them for growth in fast-paced entrepreneurial environments. She has over 6+ years of experience working with small business owners, startups, and nonprofit organizations to help connect finance with their business goals. She aims to ensure her clients become comfortable and adept at navigating their numbers. She works with clients at Woolichooks and writes a newsletter for non-finance folks.
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