Business Taxes Made Simple: Pay Quarterly. File Annually. (2024)

Small business taxes aren’t processed the same as those of individuals. When you work for a company, your employer withholds federal and other taxes from your wages each pay period, then submits them to the IRS and other agencies quarterly. You then file a tax return each year to report the earnings and payments.

As a small business owner, you must pay taxes and file an annual return yourself. Your company’s structure determines the type of tax. If you have employees, you are also responsible for withholding and reporting several federal, state and local taxes, social security and Medicare and unemployment taxes according to the IRS.1

Here's what you need to know about small business tax filing.

There are seven common business structures.

There are seven basic business structures, each with its own liabilities and tax requirements. The structure of a small business determines which taxes and deadlines apply, and the rules may vary by state.

Source: U.S. Small Business Administration, “Choose a Business Structure”

Depending on the industry, the federal government also requires some small businesses to pay excise taxes. These taxes are imposed when manufacturers or retailers sell items like fuel, airline tickets, indoor tanning, tires, tobacco and fireworks. Excise taxes may also include certain services and be imposed during import or consumer or business use.

Some states don’t require income tax payments and a few only impose taxes on dividends. Check with your state’s website or a tax adviser to see which rules apply to your business.

Who must pay estimated taxes?

Taxes are due to the IRS when income is received. Everyone who isn’t an employee of a company, including small businesses, independent contractors and freelancers, must make quarterly estimated tax payments if they expect to owe $1,000 or more. Estimated tax payments to the IRS are due as follows:2

If the payment date falls on the weekend or a legal holiday, it is due the next business day.

Calculating the correct amount of estimated small business taxes due and paying on time is important. The IRS assesses penalties and interest if payments are late or inaccurate. You may apply for an extension if you’ll be late paying but it won’t eliminate the penalty. Payment plans are also available and may reduce future penalties.

How do I calculate and make quarterly tax payments?

Determining estimated tax each quarter can be difficult, especially if this is your first year in business. Your business tax bracket, deductions and credits factor into the amount you’ll need to pay. The IRS also expects estimated payments during the specific quarters earnings are received. For businesses with highly fluctuating demand, this can prove especially challenging.

Self-employment taxes are less complicated as they are currently set at 15.3% of earnings. This percentage includes the Federal Insurance Contributions Act (FICA) tax for Social Security (12.4%) and Medicare (2.9%). Small businesses with employees split FICA equally.

There is an earnings cap, called the “taxable maximum,” for which Social Security is due and it changes annually. In 2024, the taxable maximum is $168,600. There is no cap for the Medicare portion of self-employment income.

IRSForm 1040-ESincludes an estimated tax worksheet for help calculating estimated quarterly tax payments.

The IRS accepts several payment methods.3

• Mail a check with Form 1040-ES for the accurate quarter and amount.
• Enroll in and use the Electronic Federal Tax Payment System (EFTPS).
• Visit IRS.gov/account to access your individual account and initiate an electronic payment.
• Pay by mobile device on the IRS2Go app.
• Use IRS Direct Pay.

Though estimated payments are due quarterly, the EFTPS permits weekly, biweekly, monthly or quarterly payments.

Remember, you may also need to pay state and local taxes and will face fines and interest if you don’t.

Small business tax filing and quarterly payments are different.

Though small businesses pay quarterly estimatedtaxes, the true tax liability for the year is reconciled and reported to the IRS with an annual tax return filing. This final calculation includes eligible deductions and credits. If you’ve underpaid your small business taxes during the year, you'll owe the IRS the difference, plus penalties and interest. If you’ve overpaid, you can claim a refund.

The exact forms and deadlines forsmallbusiness tax filingdepend on yourbusiness structure.

• Sole proprietorships and single-member LLCs(with only one owner) report business income and expenses onSchedule Cand include it with Form 1040 personal tax return. Form 1040 is due April 15.
• Partnerships and multi-member LLCs(more than one owner) report net profits from the business onForm 1065, which is due March 15.
• S corporationsfileForm 1120-S,which is also due March 15.

Create a plan to pay small business taxes.

Paying taxes four or five times a year might seem like drudgery and you may ask where you’ll find the funds. It’s best to create a plan with early steps to ensure you have the money when needed and can pay when you’re ready. Consider these options.

• Open a business checking or savings account.

  
  Separate your personal funds so it’s easier to track income and expenses. A business checking accountor business savings accountis a designated place to set aside the cash you’ll need and you’ll be less tempted to use them for personal needs.



• Build an emergency fund.

  
  Set aside a portion of your income each month for unexpected expenses. You can also tap this emergency fundto pay estimated small business taxes.



• Make online payments.

  
  Save yourself the hassle and time of mailing estimated payments. Pay online with IRS Direct Pay or the IRS2Go app. There’s no fee and you’ll get an immediate confirmation.

Tax planning is an ongoing process. The sooner you start the better.

File accurate, on-time quarterly payments to avoid penalties and interest.

Paying small business taxes quarterly eliminates the need for a substantial lump sum payment at the end of the year.

However, there is another significant advantage. Making these periodic payments correctly and punctually reduces the chances of an unpleasant surprise when filing annual returns. The IRS can assess an underpayment penalty against taxpayers who don't meet their obligations for payment throughout the year. The agency computes the penalty based on several factors, including the difference in the amount owed and how long it was outstanding. The IRS also charges interest on the penalties. In the current economic environment, that rate has skyrocketed to 8%.4

Get the help you need.

Running a small business isn’t easy. But help is available. A tax professional can assist with accurately estimating payments and timely small business tax filing. Synovus is here to help with your financial needs. For more information, call 1-888-SYNOVUS (1-888-796-6887) orstop by one of our local branches.