Tax

What is tax?

Taxes are mandatory payments to federal, state, and local governments. For small businesses, this typically includes income tax on profits, self-employment tax, and potentially sales tax on goods or services sold. Taxes fund public services like roads, schools, and emergency services.

Understanding your tax obligations and planning for them is essential for avoiding surprises and penalties.

Common taxes for small businesses

Depending on your business structure and activities:

• Income tax — Tax on your business profits
• Self-employment tax — Social Security and Medicare taxes for self-employed individuals
• Sales tax — Tax collected on sales of goods (and some services)
• Payroll tax — If you have employees
• Estimated taxes — Quarterly payments toward your annual tax bill

Planning for taxes

Don't let tax season catch you by surprise. Set aside 25-30% of your income for taxes, make quarterly estimated payments if required, keep good records throughout the year, and work with an accountant to optimize your tax situation.