Small Business Taxes

Paying taxes and tax planning are key requirements of running a successful small business. Learn about the taxes that businesses owe, the strategies they can use, the documents they need to produce, and the software that can help.

Frequently Asked Questions
  • What’s the best way for small businesses to calculate depreciation?

    Depreciation refers to how much of an asset’s value is left over time due to usage or becoming obsolete. Businesses can recover the cost of an eligible asset by writing off the expense over its useful life.  There are five ways of calculating this under generally accepted accounting principles (GAAP). The straight-line method is the simplest to calculate and most commonly used.

  • What do online businesses need to know about cost of goods sold (COGS)?

    COGS is the accounting term that describes the expenses incurred to produce the goods or services a company sells. COGS is also a tax deduction available to businesses, even online resellers who don’t have raw material or production costs. However, while shipping raw materials counts as a COGS expense, bubble wrap to deliver a widget to a customer doesn’t, so it’s important to learn the rules.

  • Should your small business become a limited liability company (LLC)?

    Maybe. LLCs provide superior legal and financial protection for personal assets of company owners, who also can deduct 20% of their business income before their taxes are calculated. An LLC can choose to be taxed as a S Corporation or a C Corporation. Under the Tax Cuts and Jobs Act, there is especially beneficial tax treatment for S-Corp distributions. Check with a tax advisor to see which structure makes the most sense.

  • Can your business be taxed on items like office furniture and computers?

    Yes. For tax purposes, furniture and office equipment are considered “tangible personal property,” and such movable items are taxable by states. They can be depreciated over five or seven years using straight line depreciation—or are eligible for accelerated depreciation.  In most states, businesses owning tangible property on Jan. 1, will owe taxes on it to local authorities on April 1.

  • Can you ever deduct a capital expenditure the same year you spent the money?

    Capital expenditures generally must be depreciated over the time period considered the lifespan of the product—three, five, 10, or more years. But some types of expenses for business equipment can be deducted 100% the year they are bought under Section 179 of the tax code.

  • What do business owners need to know about nonpassive income and losses?

    Nonpassive income and losses are usually declarable and deductible in the year they are incurred. However, to take them the taxpayer must annually and actively participate for more than 500 hours in the business venture (100 hours if no one else in the business works more than that). Other income can also qualify, such as from investment portfolios and deferred compensation.

Key Terms

Explore Small Business Taxes

83(b) Election: Tax Strategy and When and Why to File
The Best Method of Calculating Depreciation for Tax Reporting Purposes
Is Now the Time to Restructure Your Business?
Close-Up of American One Hundred Dollar Bills on Laptop at Table
Pigovian Tax: Definition, Purpose, Calculation, and Examples
Cushions On Sofa At Home Against Wall
Tangible Personal Property
Business executives discussing in office meeting
How Becoming an LLC Could Save Taxes Under Trump's Tax Cuts and Jobs Act of 2017
Judge Gavel With Justice Lawyers Having Team Meeting at Law Firm in Background
What Is FUTA? Definition and How to Calculate FUTA Liability
Two Female Fashion Bloggers Sitting at Desk in the Office
What Are Examples of Cost of Goods Sold (COGS) for Businesses That Sell Online?
Tax time
Tax Loss Carryforward
Tax implications
What Is the Tax Impact of Calculating Depreciation?
Taxes in New York for Small Business: The Basics
Form 941: Employer's Quarterly Federal Tax Return Definition
Tax deduction
Form 2106: Employee Business Expenses
cropped image of accountant at desk
Same-Year Tax Deductions and Capital Expenditures
accountant at desk with calculator
Franchise Tax Definition, Rates, Exemptions, and Example
Personal Loans
Nonpassive Income and Losses
Profit Motive
Revenue
How and Where Is Revenue Recognized From Barter Transactions?
Cascade Tax
Hand Holding Stack Euro Coins
Accumulated Earnings Tax
Business woman accountant at desk
Consolidated Tax Return
Corporate Inversion Definition
Construction equipment removing blocks from hundred dollar bills
Dividend Exclusion
Can a corporation deduct dividend payments before its taxes are calculated?
Capital Tax
First-Year Allowance
Payslip with tax deductions
Payroll Deduction Plan
Businessman talking to colleagues in a boardroom meeting with the skyline visible through the windows
Earnings Stripping
corruption,business concept,corruption concept
Constructive Receipt
Franked Investment Income
IRS Publication 557: Tax-Exempt Status for Your Organization
Business Tax Credits
IRS Publication 15-B, Employer's Tax Guide to Fringe Benefits
Comprehensive Tax Allocation
Excess Profits Tax
Corporate Lien
IRS Publication 334: Tax Guide for Small Business
Indian Employment Credit (IEC)
Nevada Corporation
Low-Income Housing Tax Credit (LIHTC)
Proxy Tax
IRS Publication 541
IRS Publication 931: Deposit Requirements for Employment Taxes
Tax Umbrella
Taxes in California for Small Business: The Basics
Small Business Taxes in Texas: The Basics
Taxes in Florida for Small Businesses: The Basics
The Purpose of IRS Form 1065
Taxes in Oregon for Small Business: The Basics
a house made of $50 bills
Is Captive Insurance a Legitimate Tax Shelter?
Why Are Some Spin-Offs Taxable and Some Are Tax-Free?
Top 10 Home Business Tax Tips
5 Tax Breaks Overlooked by Small Business Owners
Business people shaking hands in a meeting
Small Business Tax Obligations: Payroll Taxes
Advantages and disadvantages of capitalizing interest for tax purposes
How Large Corporations Avoid Paying Taxes
Are fringe benefits deductible for the employer?
Richmond, Virginia downtown skyline at sunset
Best States for Company Headquarters