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Introduction to Taxes

As a business owner, you are responsible for filing and paying taxes on your income. This topic will cover the basics of what you need to know to manage and file your taxes with confidence.

All immigrants, regardless of legal status, are able to become an independent contractor or start a business and file taxes using a Social Security Number (SSN), Individual Taxpayer Identification Number (ITIN), or Employer Identification Number (EIN). 

Earning money for your services as a business owner is exciting! It can be tempting to start spending your money on things you want and need, but don’t forget about your obligation to pay taxes. As an independent contractor or business owner, it is your responsibility to file and pay federal, state, and local taxes on all income. This topic will help you become familiar with tax processes that can become easily manageable once you know how things work.

When you work for yourself, there are no deductions from your paycheck for income taxes, Social Security, or Medicare, as would be the case if you were working as an employee. As an independent contractor or small business owner, you are held responsible for paying federal and state income tax, Social Security and Medicare; this combined tax is called self-employment tax for independent contractors.

Organize and Prepare

As a business owner, it is important to organize your finances in order to prepare to file your taxes. A few things you should consider and prepare for are:

  • Seeking tax preparation assistance or finding a reliable tax preparer or accountant, especially if it’s your first time filing. To find support in finding a tax preparer visit the Taxpayer Advocate Service.
  • Be prepared to pay both federal and state, and in some cases local or city, taxes 
  • Keep track of your income (both as an employee and an IC)
    • You will receive a W-2 form as an employee and a 1099 form for work done as an independent contractor.
    • You will only receive a 1099 if you made $600 or more for a particular client.
    • You will need to report income from small jobs separately
  • Keep track of your business expenses
    • It is recommended that you keep receipts of all of your expenses for at least 6 years.
    • Consider using an App to keep track of receipts such as Quickbooks or Foreceipt.
  • Pay quarterly estimated taxes if you expect to pay more than $1,000 in taxes annually.

Keep up with changes

The IRS makes updates, corrections, clarifications, and changes to tax filing requirements, forms, and procedures throughout the year so it is important to stay up to date and aware of any changes that might affect you before filing. For updated information about changes, visit the irs.gov website.

 

Keeping track and making a budget

It is important to keep track of the hours you work and submit invoices to clients on time. You should also keep a record of how long it takes for clients to pay your invoices. 

 

There are two great ways to keep track of your cash flow and ensure you are preparing to cover your taxes:

  1. Create a budget to keep track of your expenses and revenues, and forecast a couple of months ahead to keep your finances in check. 
  2. Open a separate savings account to put aside at least 25% of your income to pay for taxes.

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