Figuring out your taxes as a small business owner can feel like a guessing game since there isn’t a single tax form or single tax rate for all businesses. Not only do you need to plan around your future uncertain income — you also need to keep track of changing federal laws. As you get ready for another tax season, these strategies can help you determine your small business tax rates.
What Is the Federal Small Business Tax Rate?
Your tax rate depends on the structure of your business.
C Corporations must pay the flat corporate tax rate, which is currently 21% as of 2024. Sole proprietorships, partnerships, and S corporations are considered pass-through entities, so their incomes are taxed at the business owner’s personal tax rate, which is between 10% to 37% (see chart below for exact numbers). Limited liability companies (LLCs) have the option to pay taxes as a corporation or as a pass-through entity.
How to estimate your 2024 small business taxes:
One of the tax challenges that small business owners face is that they don’t know what their revenue will look like in a given year, and revenue helps determine the tax rate. Despite this tax rate uncertainty, the IRS still expects you to send in taxes throughout the year.
For C-corporations, you can simply apply the current corporate tax rate of 21% to your company’s taxable income. Let’s say your C-corp has a taxable income of $100,000. To calculate the tax due using the 2024 corporate tax rate of 21%:
Tax Due = Taxable Income x Tax Rate
Tax Due = $100,000 x 21%
Tax Due = $21,000
Unlike C-corporations, where the business itself is taxed separately from the owners, pass-through business owners basically include their business earnings on their personal tax forms and pay 10%-37% taxes depending on their overall personal income.
How to reduce small business taxable income:
A small business owner can reduce their taxable income by taking advantage of tax credits and exploring different deductibles:
- Deductible Business Expenses: Deduct business expenses such as office supplies, marketing costs, and travel expenses. Make sure to keep all receipts.
- Home Office Deduction: If you use a portion of your home exclusively for your business, you may qualify for a home office deduction, allowing you to deduct some of your mortgage or utilities.
- Retirement Savings: Contributions to retirement plans such as 401(k) or Simplified Employee Pension (SEP) are tax deductible.
- Section 179 Deduction: Use Section 179 to deduct the costs of certain business properties like equipment or heavy machinery.
- Business Tax Credits: Explore business tax credits such as the Work Opportunity Tax Credit (WOTC) for hiring certain employees or the Small Business Health Care Tax Credit for providing employees with health coverage.
- Consult a Professional: Seek advice from a professional tax accountant who can provide personalized guidance based on your business structure, industry, and other factors.
Keep in mind that tax laws are always changing so it is crucial to stay up to date with the latest regulations or consult with a tax professional to ensure compliance and maximized deductions.
Small Business Tax Deadlines in 2024
Estimated Tax Deadlines
Businesses and freelancers in the USA must file estimated income taxes due quarterly. Instead of playing the whole amount all at once, this helps small businesses by distributing the tax burden, preventing a large, unexpected tax liability at the end of the fiscal year.
In 2024, businesses and freelancers must file quarterly taxes by the following dates:
- First Quarter, January – March: Due April 15, 2024
- Second Quarter, April – May: Due June 17, 2024
- Third Quarter, June – August: Due Sept. 16, 2024
- Fourth Quarter, September – December: Due Jan. 15, 2025
Important Small Business Tax Deadlines in 2024
Efficiently managing your budget each quarter can play a pivotal role in allowing for a proactive approach to tax preparation. Staying ahead of tax deadlines is paramount for small businesses to ensure financial compliance and avoid late penalties.
Jan. 31, 2024
- Employees Must Receive W-2 Forms
- Independent Contractors Must Receive 1099 Forms
Feb. 15, 2024
- Reclaim your exemption from withholding
Mar. 15, 2024
- Switch Business Election to S-Corporation for 2024 Taxes
Apr. 15, 2024
- Tax Day (unless extended due to local state holiday).
- Deadline to File Form 4868 and request an extension.
- Deadline to make IRA and HSA contributions for 2023 tax year.
- First quarter 2024 estimated tax payment due.
Jun. 17, 2024
- Second quarter 2024 estimated tax payment due.
Sep. 16, 2024
- Third quarter 2024 estimated tax payment due.
Oct. 15, 2024
- Deadline to file the extended 2023 tax return.
Jan. 15, 2025
- Fourth quarter 2025 estimated tax payment due.
Where an Accountant can help
An accountant can help a small business owner understand their tax rate changes and answer any questions they may have regarding the 2024 updates. A knowledgeable accountant can minimize a business’s tax liability by taking advantage of all credits and deductions available. Accountants keep track of important tax deadlines, so you don’t have to, helping you avoid late filing penalties and ensure compliance with the law. In case of an audit, accountants can provide the support and guidance to meet the audit requirements.
Small business owners can efficiently manage their taxes by leveraging software like QuickBooks and TurboTax. QuickBooks allows small business owners to automate bookkeeping tasks, organize transactions, assess their financial health, and seamlessly integrate with TurboTax. TurboTax guides users through the tax preparation process. Small business owners can import their data from QuickBooks to TurboTax. TurboTax prompts users with questions to identify potential deductions. TurboTax offers e-filing making it convenient for small business owners to submit their tax returns electronically.
