Hi There,
I recently opened up a small dog training and pet sitting business. I have been doing a small amount of this kind of work under the table, but now that I have the business I know that I need to pay taxes. When do small businesses have to pay taxes and how do you go about it? I am in Massachusetts. Thanks for any help!
Marni
Dear Pioneer Pets,
I am going to read between the lines of your question and assume first, that you have no employees, and second, you have not incorporated your business. In other words, you are running a "sole-proprietorship" by yourself.
If this is the case, your primary tax obligations as a result of this business are going to be your quarterly estimated tax payments on your self-employment income. (As an employee, you have regular withholdings on your wages; as a business owner, you also have to make regular payments via quarterly estimates.) These estimated tax payments should include not only the federal taxes you have to pay on your net business income, but also "self-employment tax" which is 15.3 percent of your net income. This represents the employer and the employee share of the amount that must be paid into Social Security and Medicare. Because you own the business, you are both employer and employee.
The IRS has just put out a colorful, easy-to-read, practical calendar of 2010 tax dates and requirements for small business. In addition to the important dates you must be aware of, it has information on the best type of entity for your business (ie.,incorporation, limited liability company, sole proprietorship); accounting methods; types of retirement plans for small businesses; and the types of records you should keep. It is an excellent resource for someone just starting out: very friendly and not-at-all intimidating.
Good luck with your business. Pet care and sitting is a high-demand service these days -- it seems that the recession has not affected Americans' willingness to spend on their beloved pets.
by: Eleanor Blayney | February 01 2010
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Dear Pioneer Pets:
I forgot to give you the link to the IRS' calendar:
www.irs.gov/pub/irs-pdf/p1518.pdf
One more thing, the quarterly estimated payments you must pay to the federal government will also need to be made to your state as well, in order to avoid any underpayment penalties.
by: Eleanor Blayney | February 01 2010
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Hi Marni
Its great that you have your own business, congratulations. One thought for you is that it probably makes sense to use a professional tax person. This will help you get all the deductions for your business, including ones you may not have otherwise been aware of. It might be nice to know this person, and increase your networking opportunities too. Best of luck!
by: Chuck Johnson | February 02 2010
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Agreeing with this post! I started my own business and was incorporated as an S Corporation in MA. My accountant handles filing my taxes and it works well because he works in my personal returns as well - though it can be quite costly. I spend about $1,300 a year on accounting fees for both the personal and corporate assistance (that said, I'd have no idea how to do it myself). My accountant has been around for a long time but you should be able to find a "newbie" for a cheaper hourly rate.
In terms of the taxes: I pay $456 in corparate taxes on a year basis, due on March 15th of 2010 (and so on) as well as $125 in State taxes to MA for the business.
Hope this helps!
CardSauce.com
http://www.cardsauce.com
You may find this Q&A from the site helpful:
http://www.lifetuner.org/topics/33-taxes/questions/38-what_are_estimated_taxes
The IRS has a helpful (though of course tax-geeky) publication called Starting a Business and Keeping Records that gives a good overview of the topic:
http://www.irs.gov/publications/p583/index.html
Your state may offer something similar.
Most small business owners find it's a lot easier to find a good accountant to deal with this stuff for you, but it's always a good idea to learn the basics.
-Tad
by: Tad Borek | February 02 2010
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