Personal Taxes vs. Business Taxes

Filing taxes is a requirement whether you are an individual or a business owner. While there are some similarities between personal and business taxes, such as reporting all earned income, deductions for charitable donations, and “pay as you go” provisions, there are also significant differences.

Differences in Payment Expectations

While an individual taxpayer who works for an employer files their taxes one time annually, business taxes must be paid on a quarterly basis. This is true whether someone is self-employed, or they are filing taxes for a business.

Important Differences in Dates

Most individual taxpayers know their taxes are due on April 15, with exceptions made for holidays. However, business taxpayers face numerous other deadlines. In addition to the quarterly tax filing deadlines, payroll taxes must be filed monthly, and final tax returns are due one time annually, traditionally between March and May.

Tax Rates Vary Greatly

Each business structure may be subjected to different tax rates. For example, the tax rates used for someone who is self-employed is typically similar in nature to your personal tax rates. The significant difference is that a self-employed person will be required to pay self-employment tax which includes Medicaid and Social Security Since there is no employer, a person who is self-employed pays both the employer and employee contribution.

Larger companies that are structured as corporations will be subjected to a corporate income tax rate. This also means filing different tax forms than an individual, or a sole proprietor would use for their filing. S-Corporations, which are typically smaller companies, file a Form 1120S and issue each person who owns part of the corporation a K1 form which is like the forms used for partnerships. Partnerships must file several documents including the Form K1.

Business Deductions Matter

While a business tax filer may claim charitable deductions in the same manner as an individual, there are other deductions that are unique to those who operate a business. For example, business tax filers can include payments made to employees as a tax deduction. In addition, certain business investments, cost of travel, home office expenses, and more can be deducted on a business tax return.

Making the Change

When you are a new business owner, you may not be aware of the significant differences between personal and business taxes. This is one of the reasons why it is important for new business owners to work with a qualified tax advisor.

It is important to be aware that late payments to the IRS can, and often does, result in penalties which means you are going to be paying more than what you owe. There are important deadlines you should be aware of and it is important to work with someone who understands taxes, and your business needs.

Whether you have an established business, or you are a new business owner, contact Rue & Associates today. We take pride in having qualified staff members including experienced businesspeople and accountants, tax professionals, Enrolled Agents and CPA’s who can help you with both your personal and business tax needs.