The Best Way to Make Business Tax Payments
Business Account vs. Personal Account
New small business owners find tax season very stressful. They worry about how to pay both business and personal taxes, which checking account to use, and what forms to include. Other worries include completing the quarterly estimated taxes and paying the self-employment taxes.
The best way to approach paying business taxes is calmly and methodically. Keep accurate records and do a weekly or at least monthly review of your tax withholdings and obligations.
Filing Schedule C
First, let's look at the question of which account to use to pay business taxes at the time you file your business and personal tax return. Most small businesses file Schedule C for business taxes and Schedule C is part of your personal tax return filing.
Separate Out Business Expenses
You always want to separate out business from personal expenses. Business expenses are deductible in most cases, but personal expenses usually aren't (or deductions are limited). So, your CPA gives you one bill for tax return preparation - for your personal taxes and Schedule C for your business taxes.
Paying for Tax Preparation
Paying for tax preparation can be divided easily between Schedule C and the personal tax return. Ask your tax preparer to divide your bill into two parts - one part for preparation of Schedule C and one part for preparation of your Form 1040. Then pay the Schedule C preparation bill with your business checking account and the bill for your personal tax return with a personal check.
Income Tax and Self-employment
You must pay your taxes on your business mixed up with personal taxes and self-employment taxes—which are essentially a business tax bill. However, remember that income taxes are considered a personal expense, not a business expense. Knowing how much tax you must pay on your business income doesn't make a difference.
The same is true for self-employment taxes (Social Security and Medicare). These taxes are considered a personal expense, not a business expense.
Paying for Estimated Taxes
If you commonly don't have to pay estimated taxes personally, because you have withheld enough from other income, and your business will show a profit this year, then you might want to pay your business taxes from your business checking account. Using your business checking account to pay estimated taxes for business profits leaves fewer questions for the IRS.
Which account to use to pay estimated business taxes might also be determined by your business type. For a sole proprietorship, it may not matter which checking account you use, but you don't want the IRS to question the separation of business and personal expenses. For LLC's and partnerships, use the business checking account unless you typically pay estimated taxes on your personal taxes.
Check with your tax advisor before writing a check to pay your estimated taxes.
If you don't have a separate checking account for your business, you should seriously consider getting one.
Other Ways to Pay
Other options for filing your business taxes with the IRS include e-filing, through the IRS e-file and pay system. If you have a tax preparer do your taxes, you can file through your tax preparer, who can also help you separate out business and personal tax payments.
You can also use tax preparation software to prepare your combined business and personal taxes, but you won't get any help figuring out how to separate the business from the personal tax payments.