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Introduction to Business Taxes: Your Guide to Getting Started

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Having an understanding of and effectively managing taxes is not solely a legal responsibility, but also an essential element in successfully operating an ethical business. It safeguards your financial stability, credibility, and long-term growth potential, all while ensuring compliance with tax laws and regulations.  In this article, we’ll get you up to speed on the basics of business taxes to help you feel more confident not just during tax season, but year-round. We’ll cover the EIN, business structures, tax obligations, and estimated payments. Do You Need an EIN? An Employer Identification Number (EIN), also known as a Federal Tax ID Number, is utilized to distinguish a business entity for tax purposes. You can apply for an EIN online.  Not every business needs an EIN. Determining if you need an EIN depends on your business structure. For example, if your business is a corporation or partnership, you will need an EIN. If your business is a sole proprietorship, your social security number will likely act as your business’s EIN. Check if you need an EIN at this link.  You will use your EIN for these purposes: Your EIN may need to change if the ownership or structure of your business has changed.  Types of Business Structures When opening a new business, there are many different business structures to consider, each of which has different tax advantages and protections: Here are the main types of business structures: Your business structure serves as the basis for how you pay taxes, so choose wisely and know your business structure well. Understanding Your Tax Obligations As a business owner, you have many tax obligations, including federal income tax, self-employment tax, employment taxes, sales tax, and state taxes. Plus, you need to understand tax deductions and credits. Here we’ll cover the basic details of each, but we always recommend seeking a tax professional to learn more about your specific situation …

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Unpaid Payroll Taxes: Avoid at All Costs

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Do you pay your payroll taxes on time? In this article, we’ll define what payroll taxes are, what it means when they are unpaid, and the penalties for not paying payroll taxes on time.  What are Unpaid Payroll Taxes? Payroll taxes are the federal and state taxes that an employer deducts from employees' wages. They are a subset of employment taxes that employers pay.  When payroll taxes are “unpaid,” it means the employer neglects to pay them to the relevant tax authorities. Types of Payroll Taxes Employers need to pay many types of payroll taxes on behalf of their employees, including: Federal Income Tax Withholding: Employers have a legal obligation to subtract federal income taxes from employees' wages, which is determined by their W-4 forms and the IRS tax tables. Social Security and Medicare (FICA) Taxes: Employers have the obligation to subtract Social Security and Medicare taxes from employees' wages, along with making a matching contribution on behalf of their employees. State Income Tax Withholding: In states that have income tax, it is the duty of employers to subtract state income taxes from their employees' earnings and submit them to the state tax authority. What about FUTA? Related to payroll taxes is another type of employment tax – Federal Unemployment Tax (FUTA). Employers are required by law to contribute towards federal unemployment taxes, ensuring the availability of financial support for eligible workers during periods of unemployment. However, FUTA is not considered a payroll tax because it is not paid by employees nor is it deducted from their wages. Penalties for Unpaid Payroll Taxes Employers may face severe penalties and repercussions if they fail to pay their payroll taxes. The following consequences are associated with non-payment: Failure to Deposit Penalty: Employers who do not meet the deadline for depositing payroll taxes can incur fines that correspond to a percentage of the outstanding tax sum. The …

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Identity Theft Red Flags Tax Pros Should Know

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Recently, the IRS, state tax agencies, and the U.S. tax industry hosted a Security Summit to help taxpayers combat identity theft refund fraud. In this article, we’ll share our top takeaways from the Summit as well as a few other red flags and best practices to help you protect your clients’ information and your business from identity theft. Identity Theft Red Flags As a tax professional, you need to be vigilant while watching out for identity theft red flags, both in your business and for your clients.  Here is a list of red flags to watch out for that pertain to your business: Beware of these identity theft red flags when talking to and working on behalf of your clients: How to Respond to Identity Theft Red Flags as a Tax Pro If you suspect that your business is a victim of identity theft, then you need to carry out the following actions ASAP: If you suspect that your client has become a victim of identity theft, it is crucial that you or your client promptly contact the IRS. Then encourage your client to seek assistance from insurance or cybersecurity professionals to determine the cause and magnitude of the damage. eFile360 Can Help Tax Pros Avoid Identity Theft We help tax pros like you e-file 1099, 1098, W‑2, and Affordable Care Act forms. Learn how eFile360 works at this link.  To help you and your clients avoid identity theft, we offer a TIN Checking add-on service to help you validate the recipient's Tax ID. This service can give you and your client peace of mind.  Here’s how our TIN Checking service works: We will cross-check the tax ID and name combination to ensure accuracy. In case of any inconsistencies, we will notify you so that you can verify the details with your client and make necessary corrections. Once the information is corrected, we will conduct another verification on your behalf. If everything aligns correctly, we proceed with e-filing your form. In addition to our TIN Checking …

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What You Need to Know About the IRS Going Paperless

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You’ve probably heard about the IRS’s Paperless Processing Initiative by now, so let’s dive into what it means for you. What is the Paperless Processing Initiative?  The IRS's new initiative for paperless processing aims to reduce the use of paper by up to 200 million pieces every year, while also decreasing processing times by 50% and speeding up the process of sending refunds by several weeks. Not only will it allow the IRS to process digitized tax returns and forms, but it will also allow taxpayers to submit digital tax returns and forms – even on mobile! What Does Going Paperless Look Like? Starting in the 2024 filing season, taxpayers will be able to go paperless. This means you can: Submit all correspondence, non-tax forms, and responses digitally Continue to submit paper returns and correspondence if you prefer E-file 20 additional tax forms, including amendments to Forms 940, 941, 941-SS and 941 (PR) Complete and submit at least 20 of the most used non-tax forms from your mobile device Starting in filing season 2025, you will be able to: Complete and submit over 150 of the most used non-tax forms from your mobile device Access your historical tax data in a digital format eFile360 Can Help You Go Paperless  Go paperless today by signing up for a free eFile360 account. With an eFile360 account, you can e-file 1099, 1098, W‑2, and ACA forms; view the status of submitted forms; manage payer and recipient information; and more.  …

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How SMBs Can Prevent Tax Debt

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We’ve previously covered back taxes and how to resolve them, but how do you prevent tax debt? What is Tax Debt? Back taxes are when you owe the IRS, and you either don’t pay your taxes or you pay the wrong amount. If you continue to miss payments, you have tax debt.  Tax debt is calculated by subtracting the payment made towards taxes from the total amount owed in taxes.  Now that you know what tax debt is, let’s dive into how to prevent it.  Pay Estimated Taxes Correctly One of the most common ways businesses rack up tax debt is that they don’t follow the IRS guidelines on how to pay their taxes – namely, paying estimated taxes. Then, when their tax bill comes, they simply cannot pay it. To resolve this, it’s important to follow the IRS guidelines from the very start – or at least as soon as possible.  Estimated tax amounts include: the individual’s federal income taxes of 10% to 37% state/municipal taxes up to 13.3% self-employment taxes of 15.3% for self-employed individuals Small business owners are not informed by the IRS and state tax authorities about their failure to pay estimated taxes until after they have filed their year-end tax returns. Unfortunately, by that time, it is too late for them to avoid the estimated tax trap and they find themselves burdened with a substantial tax bill accompanied by penalties and interest that they are unable to manage financially. So how do you prevent tax debt by paying estimated taxes correctly? Maintain Accurate Financial Records Before you can pay estimated taxes correctly, you first need to know how much you’ll pay in estimated taxes. Keep meticulous and up-to-date financial records, including income, expenses, and deductions. Using accounting software can help streamline this process. Working with an accountant and/or tax professional can help ensure you’re calculating deductions accurately and that you’re not missing any other details.  Set Aside Funds for Taxes You already know to keep your personal …

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How to Avoid The Latest Business Tax Scams

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Tax scams can be detrimental to small and medium-sized businesses (SMBs). Scams can harm your business finances and reputation. To help you avoid business tax scams, we compiled our top tips. Learn Scam Trends The first step to avoiding business tax scams is to learn about them, including common scams and the latest scam trends. Check out our lists of the top 10 Tax Scams SMBs Need To Watch Out For and other tax scams you should be aware of.  Visit Government Websites When looking to apply for an EIN, for example, or respond to a request from the IRS, make sure to do so through the correct government website. The IRS website is at https://www.irs.gov/. Be sure to look for the banner at the top of the page that says, “An official website for the United States government.” State government websites also end with “.gov” but local governments may not. If you receive a tax letter that lists any other URL, it is likely spam.  Verify Identity Always verify the identity of individuals or organizations requesting sensitive tax information. Ask for these details: Full name Contact information, including phone number and email address Credentials, such as a Certified Public Accountant (CPA) license or Enrolled Agent (EA) designation Official documentation, such as a letter or notice for the tax authority Also, be aware of how different entities will contact you regarding your tax information. For example, the IRS will always mail tax documents to you, and they will never call, text, email, or contact you via social media to demand payment or discuss your taxes. The only exception to this rule is if the IRS has already sent multiple letters asking you to pay your tax bill, but even those calls are rare.  If you are contacted by a third-party debt collector and you owe back taxes, you will first receive a letter in the mail from the IRS letting you know that the collection agency will contact you to collect the debt. If you have not received such a letter from the …

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