Small Business Taxes

When planning a small business you need to decide what type of business entity you will have in order to determine what small business taxes you’ll need to pay.

A small business can be:

  • A sole proprietorship is when one person owns an unincorporated business. This type of business keeps the personal and business expenses tied together and you report business income as part of your personal tax return.
  • A limited liability corporation has members. The membership isn’t limited and can include family members, other individuals, corporations, and foreign entities. There are even LLCs of just one person. Like corporations the members of an LLC have very limited personal liability for the small business debts or actions. Yet like a partnership an LLC has lots of flexibility when it comes to management and tax benefits.
  • A partnership is a legal arrangement where two or more people join together in a small business. The legal arrangement details what money, labor, skills, or money, are put into the business by each partner and how profits and losses are shared.
  • A corporation allows shareholders to exchange their property and money for capital stock in the corporation. Generally a corporation can take the same type of deductions as a sole proprietorship along with special corporate deductions. There are several types of corporations.

The type of a small business you have will determine which taxes you need to pay and the type of tax form you have to fill out. There are basically four types of business taxes for small business. You may need to pay some or all of these taxes. The four types of taxes for small business include income tax on any profit or income made, self-employment tax which is Medicare and social security for those who work for themselves, excise tax on specific products like motor fuels, and if you pay employees you will have to pay employer taxes.

Once you’ve decided what type of small business to have you may need to get a tax identification number for the business. This is called an Employer Identification Number or EIN. If you are self-employed or have a small business this identification number allows you to keep your business and personal expenses separate. It is also one of the steps that you need to complete if you want to establish credit for your small business without using a personal guarantee.

Employer Identification Number

An Employer Identification Number is a number for your business that works much like a social security number does for individuals. The EIN is a federal tax identifier. This number will identify your business to the state and federal government when you file taxes. You will need the number keep your business expenses, bank accounts, and taxes separate from your personal finances. An Employer Identification Number is also known as an Employer Tax ID.

State Taxes for Small Businesses

Depending on the state where you have your small business you may need to pay business or corporate income tax, and if you sell products you may also have to collect and pay sales tax. The type of taxes that you have to pay and the forms you have to fill out for the state will depend on the legal structure of your business, just as it does with federal taxes.

The state you live in may also require you to get a state tax ID number. You will need this number to account for any state income tax withholding, state specific sales and use taxes, and any unemployment insurance tax if you have employees.

Small Business Tax Returns

If you have a sole-proprietorship your small business and personal finances are tied together and you report them on a 1040, then the federal income tax laws in 2010 require you to file an income tax return if your net earnings from self-employment or a small business are $400. If you didn’t make $400 you may still have to file an income tax return if you meet some of the other Form 1040 requirements that are in the instructions. This may be how you file small business taxes if you are a sole proprietorship and don’t have a separate EIN number for the business.

A Schedule C is used to compute any profit or loss for the business. If you have several different businesses you would need to do a different Schedule C for each business. There is a Schedule C-EZ form for those small business owners who have only one sole proprietorship business. You can use this form if you didn’t have a net loss and can meet the requirements in the Schedule’s Part I.

There are different forms required if you are a partnership, corporation, or LLC. You will need to file the correct forms to report income or loss, any sales or excise taxes due, as well as any employer taxes if you have paid employees working for the small business. You should speak with an accountant and make sure that you are filing your small business taxes correctly based on the type of business that you have.

Starting Your Own Business

Starting your own business is a little like beginning a journey; first, you need to know where you want to go and how to get there!

Experts advise getting to know yourself by asking questions involving your character. The answers will ensure you end up with a business that fits your style. Next, researching what types of businesses are available will help you find the perfect one. Last, learning about financing, legal issues, and marketing techniques will give you confidence to launch your company.

Who Am I?

Are you a go-getter, always out in front, competitive? Or do you have a more laid-back style? The obvious Type A personality isn’t always necessary for successful entrepreneurship, but knowing your personal style is necessary to your success. Investing your time, money and reputation on a business that does not reflect your style could be disastrous.

There are several ways to find out key elements of your personality; self-examination, asking friends and family to make a list of positive and negative traits they see in you, and formal or informal personality tests. has a basic test for potential business owners to help discover their inner self.

What’s Out There?

Whether you have an idea for a business in mind or not, research is the key to a successful business launch. If you already know what type of business you want to start, research your competition. This will give you an idea of what is already available, how it is being marketed, the type of success it is receiving, as well as ideas of ways you can make it better! Don’t get nervous, just because there is competition, doesn’t mean you should drop your idea, simply find your own niche.

Many people want to own their own business, but don’t have a solid idea.

Again, research will help uncover the type of businesses available. Start by asking yourself questions such as, how much do I want to work, where do I want to work (at home, store front, the Bahamas?), how much money do I have to spend for startup costs, can I get a business loan if needed, etc., and also use your answers from the above mentioned personality test to find a good business fit.


Now that you know who you are and what you want to do, it is time to put it together and make your business dream come true. To make this happen, you need to get all your ducks in a row. For a small, low-cost, startup business, just a line or two on a piece of paper about your business (often called a mission statement) may be enough to get focused and started. For a larger business, especially those needing seed money of some type, a formal business plan will be needed.

Your local small business office or commerce department may be able to assist with writing your business plan. Two reliable online sources for learning about writing business plans are StartupNation and Small Business Television. SBA.Gov has many resources available as well. Potential business owners may need or want to seek the advice of an attorney who specializes in business ownership, as well as hiring accountants and other advisors as needed.

How Do I Find the Money?

Financing a new business could be an entire article (or 3!) itself. Suffice it to say that the type of business you want to launch will determine how much money you will need. Some people have successfully launched a business for less than $100. Usually they have an expertise that they can market. Many small businesses obtain a business credit card account to help finance initial start up and running costs.

Do your research to find the credit card finance charges and fees that work for you. Larger businesses, such as franchises, cost anywhere from $150,000 to $1,000,000. If you don’t have that stashed away, a business loan might be needed. There are many types of business loans available, so once you have that business plan in hand, talk to a variety of local banks and credit unions. According to you might need to consolidate your existing loans to figure out your debt and how much more you can ask for.

To Market, To Market

How will you get the word out about your new company? Ask yourself a question. When you want to get your hair cut, or are looking for a business to do something for you, where do you go? The internet of course! Regardless of the type of business, you need a web site! These can be started for as little as ten dollars a month or you may want to hire an expert web developer.

It depends on your business. Research for a domain name before you name your business, as availability may affect what you choose. Many people have used and for getting a domain name and website started. One way to attract people to your website is to use GoogleAdWords. You pay for as much or little exposure on this search engine as you want or need.

Fleet Car Insurance

Fleet insurance is required by companies or individuals that use the automobile for work purposes, if there is one or more vehicle involved in this use.

You may need fleet car insurance if you only have one car, and it doesn’t have to be a service van or a large truck, the car could be a two-seater and still need to be insured by a commercial insurance company.

A typical auto insurance policy is used to insure your vehicle for private use, for going back and forth to work and running personal errands. But if the vehicle you are insuring is used predominantly for work purposes, then having the wrong insurance could result in a denial of any claim made.

One important thing to keep in mind with fleet car insurance is that is handled by a commercial insurance company.

Fleet Requirements

Call a commercial insurance company and check with a representative on the laws in your state that govern fleet insurance. While the vehicle won’t matter, the use or percentage of use for work will make a difference.

Someone who uses their vehicle for deliveries, to travel to and from any type of appointment, or to service clients of any type should theoretically use fleet insurance.

The policy limits and requirements will typically look like the requirements for personal insurance, with a few exceptions that include:

  • Taxicabs and limo companies will often be required to have higher liability limits than any other type of company as they transport people. These limits will be set by state laws.
  • Companies who cross state lines with their company cars or other vehicles may have additional conditions placed on their policy.
  • Trailers such as flatbeds or covered containers that are towed behind a truck, car, or other vehicle—normally aren’t required to have liability coverage as this type of insurance would be covered under the insurance plan of the towing vehicle. This type of trailer is required to have separate collision and comprehensive coverage from the towing vehicle. For non-motorized trailers the insurance in generally fixed on a stated value basis.

There is More to Fleet Insurance Than the Vehicle

Just like with personal car insurance, fleet car insurance offers basic coverage with riders to cover additional options. One of the first questions a business owner needs to ask is if the fleet insurance policy only covers the vehicles, or if it will cover other items like driver and passenger injury.

Other options may include:

  • Coverage for stored vehicles. Check if these unused vehicles are covered, and ask questions like if the vehicles have to be stored inside or on a fenced property?
  • Insurance for training. Are the fleet vehicles covered if you are training a new driver?
  • Insurance for more than the vehicle. Check with the agent to see if your goods to be delivered, vehicle aftermarket accessories, tools, equipment, or anything else in-or-on the vehicle are covered if stolen, vandalized, or destroyed in an accident.

Fleet Drivers

With a fleet car insurance policy you have to list the drivers that are covered. This isn’t like a private policy that extends coverage to occasional drivers without notifying the insurance company. With fleet insurance, if a driver isn’t on the list accident claims will not be covered. It is imperative that businesses list all possible drivers on their policy.

General fleet insurance rules require drivers to be 25 or over to 74 years of age. The driver must have a current driver’s license that allows them to operate the type of vehicle driven. In other words if the fleet vehicle requires a CDL license, the employee needs to have that license.


Other questions that are important when companies consider the quotes from commercial insurance companies, is the abilities of the company if there is a claim. You need to know that service will be nationwide and 24 by 7, or if there are limited hours. If your business works 7 days a week, all over the country, you need an insurance company that can be reached during those hours.

Get some information on how long the company has been in business and their reliability and customer service record. Verify the information given to you by the company providing the quote with a little sleuthing on the Internet. It is important to choose fleet car insurance on more than the premium quote alone. If there is an accident, getting the vehicle and its contents replaced in a timely manner may make the difference for a small company owner of staying in business or not. So not only is the fleet insurance policy important, a good reputation for the insurance company is also essential.