How to Figure Small Business Taxes

by Devra Gartenstein

Overview

There are three primary kinds of small business taxes: income taxes, revenue taxes and employment taxes. Income taxes accrue on the amount of profit your business earns. If you earn no profit, you owe no income tax. Revenue taxes cover a business's gross sales regardless of its expenses, so you owe revenue tax if your business makes any sales, even if your expenses exceed your sales and your business makes no profit. Employment taxes are due on wages that you pay to any registered employees; you don't need to pay employment taxes on sums you pay to independent contractors.

Step 1

Keep track of your total business sales. City and state excise taxes usually require you to pay a nominal percentage of your gross sales. When your excise tax forms from your city and state arrive in the mail, calculate the amount you have to pay by entering your gross sales in the appropriate column and multiplying it by the tax rate printed on the form for your particular type of business.
Step 2

Keep track of your deductible business expenses or expenditures that the IRS or your state government allows you to claim as legitimate business expenses. Calculate your profit by subtracting your expenses from your gross sales. Figure the tax you owe on your business income by referring to appropriate tax rates and protocols for distributing and claiming income depending on whether your business is a sole proprietorship, partnership, limited liability corporation or S corporation.
Step 3

Deduct state and federal income taxes and Social Security taxes from your employees' payroll checks during each pay period. Figure income tax by consulting IRS tax tables. Calculate Social Security and Medicare taxes by multiplying each employee's wages by the current tax rate. Calculate state payroll taxes according to the instructions you receive from state agencies. Also keep track of your business's employment tax liabilities by calculating your matching share of Social Security and Medicare taxes and state tax liabilities for unemployment insurance and workers' compensation.

Overview