"When

does a Business Start Paying Taxes?" may sound like a silly question, with an

expected answer of: "When you start making a profit, of course." Not

necessarily.

There

are many dependencies that determine when a new small business owner is liable

for their first tax payment. For example, the moment you hire your first

employee you must deposit payroll taxes. If you are in the consumer retail

business, you must deal with sales tax. Then there are federal and state income

taxes, which you must pay once a quarter, and so on.

Quite

the minefield!

Below

are some tips and resources that can help you navigate through your tax

obligations as a new business owner.

1. Determine Your

Income Tax Requirements and Manage your Payments

When

I first went into business I was blissfully unaware that if you expect to pay

more than $1000 in business tax in one year, then you must estimate your

federal and state income tax payment each quarter and remit it to the IRS and

your state before each quarterly deadline (estimated taxes are due four times a

year: April 15, June 15, September 15, and January 15).

The

truth is, many budding entrepreneurs ignore their income tax commitments until

it's a little too late. And if you don't plan ahead and set-aside enough money

to cover your quarterly payment, the results can be devastating in terms of

cash flow.

To

pay your quarterly income tax (not subject to withholdings), you will need to complete

the appropriate form for your type of business structure. For example, if your

business is an LLC, the LLC gets taxed separate from the owners, while sole

proprietors report their personal and business income taxes using the same form.

More on how your business structure affects your tax liability and which forms

you will need here.

You

can use your previous year's tax return as a guide as to what your payment will

be, but good record keeping and business forecasting will also help you "set

aside" the right amount of taxable income as it comes into your business.   Don't forget to deduct business expenses from your base income before you calculate your tax

estimate.

You

should pay your state income tax at the same time. Find links to your state's tax

office for the appropriate forms here.

2. Paying Sales Tax - Does it Apply to You?

Sales

tax applies to certain retail products (rarely services) and if your business

has a physical presence in a state, such as a store, office or warehouse, you

must apply for a sales tax permit and collect applicable state and local sales

tax from your customers. You will then pass that sales tax on to your state

revenue office on a monthly or quarterly basis.

Determining whether your business

qualifies as having physical presence in a particular state (say, if you own a

warehouse in Virginia but sell your services

in Pennsylvania)

and the implications on sales tax collection can be confusing. Contact your state's revenue

agency or talk to your local SBA

representative if you are unsure.

If you operate an online

e-commerce site, read up on collecting

sales taxes over the Internet.

Certain

states are exempt from sales tax including Alaska,

Delaware, Hawaii,

Montana, New

Hampshire and Oregon.

3. Employment Tax - Withholding and Matching

If you start your business and immediately have employees on your payroll, you’ll need to withhold Social Security (FICA), Medicare and federal and state income taxes from their salaries. You must also match your employees FICA and Medicare taxes and pay this matching along with your employee’s tax. You are also required by law to pay federal and state unemployment taxes.

Read Employment

Tax 101- Know Your Withholding, Payment and Reporting Obligations in which I map out seven steps for

withholding, paying, and reporting employment taxes. Follow these, and be sure

to bookmark the "Small

Business Guide to Employment Taxes" on Business.gov.

4. Working with Freelancers and Independent Contractors - Know your Tax Obligations

Bringing

on a self-employed contractor, instead of adding to direct employee headcount,

can save a small business owner as much as 30 percent (per worker) in

additional payroll taxes and benefits. Read Working with Independent Contractors: Understanding

Tax Requirements, which outlines three

steps you need to take to ensure regulatory compliance when hiring an

independent contractor.

5. Taking Care of Business Property Taxes

If

you own or conduct business in a commercial real estate location you will need

to pay property tax to your state. If you lease the property, check your lease to

determine whether you or the owner is liable. 

States

also collect property tax for business assets such as vehicles and even

computer equipment and peripherals. Read more in this Allbusiness.com article, The Basics of Business Property Tax; when in doubt check with your state's

tax office.

6. Tax Deductions and Expenses

Many

small business owners under-estimate the scope of their deductions. For small

businesses and home-based businesses in particular, getting it wrong can leave

you vulnerable to an IRS audit.

Read

Tax Deduction 101 for Small Business, which includes basic guidance from the government that

will help you take all the deductions that you deserve.

Additional Resources

• Business.gov

  Small Business Tax Center - A great resource

  for small business owners that aggregates tax resources and advice (from the

  IRS and the SBA) in one portal, making it easy to understand your tax

  obligations.

• Five Strategic Ways to Ease Your Tax Burden - Includes some fundamental long term business

  strategies and approaches that can help reduce your small business tax

  liability.