Your business may owe federal income, estimated, self-employment, payroll, or excise taxes, plus state and local taxes. Which ones apply depends on your business structure, income, employees, sales, property, activities, and the places where you operate. There is no single tax checklist that fits every business.
Start with your business structure and activities
The Internal Revenue Service says, “The form of business you operate determines what taxes you must pay and how you pay them.” Your structure helps determine who reports business income and which federal return is required; your workforce, products or services, property, and operating locations can add other obligations.
An LLC does not have one automatic federal tax treatment. Its federal tax classification matters. In general, a sole proprietor reports business income and expenses on an individual return; a corporation generally files a corporate income-tax return; and a partnership generally files an information return. Most businesses file an annual federal income-tax return, but the form and taxpayer differ by structure.
Federal taxes your business may owe
| Tax category | What can trigger it | What it generally involves |
|---|---|---|
| Income tax | Business income, with the reporting method determined in part by business structure | An annual return filed by the business or reported by its owners, depending on its tax classification |
| Estimated tax | Income tax that is not sufficiently covered through withholding | Pay-as-you-go payments during the year, when required |
| Self-employment tax | Net earnings from self-employment | Social Security and Medicare taxes paid by qualifying self-employed people |
| Employment taxes | Having employees | Employee withholding, employer-paid taxes, deposits, and payroll reporting |
| Excise tax | Specified products, activities, equipment, facilities, or services | Tax and, for some activities, registration and special reporting |
Income tax depends on classification
Do not assume that every business files the same kind of return. Partnerships generally file an information return, while their partners report their shares as required; sole proprietors report business income and expenses on an individual return. Corporations generally file a corporate return. For an LLC, establish its federal tax classification before deciding which income-tax return and payment rules apply.
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Estimated tax: check whether payments are required
Federal income tax is generally paid as income is earned, either through withholding or estimated payments. Under current IRS guidance, individuals—including sole proprietors, partners, and S corporation shareholders—generally need estimated payments if they expect to owe at least $1,000 when they file. Corporations generally face a $500 expected-balance threshold. These are general thresholds, not a guarantee that a particular business must pay: exceptions and filing-year rules apply, so check the IRS instructions for the relevant tax year.
Self-employment tax
People who work for themselves may owe self-employment tax, which funds Social Security and Medicare coverage. IRS guidance generally requires Schedule SE when net self-employment earnings are $400 or more, subject to exceptions. This is separate from income tax; determine whether both apply to the owner’s circumstances.
Employment taxes when you hire
An employer generally must withhold federal income tax and the employee share of Social Security and Medicare taxes, pay the employer share of Social Security and Medicare, and pay federal unemployment tax (FUTA) from its own funds. Employers also have deposit and reporting duties. Many use Forms 941 and 940, but the required form and schedule depend on the employer’s circumstances. Federal employment-tax deposits generally must be made electronically.
Excise taxes for specified activities
Excise tax is not a standard bill for every business. It applies to certain products, activities, equipment, facilities, or services. Some covered activities also require registration, and Form 720 is used for many federal excise tax liabilities. Check the rules for the specific thing your business sells or does rather than assuming this category applies—or does not apply.
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State and local taxes depend on where you operate
State and local rules can add income, employment, sales, property, or franchise taxes. The applicable authorities, tax base, rates, exemptions, and filing requirements vary by location and business circumstances. Check the relevant state department of revenue and local tax authority; a rule for one state or city does not establish what a business owes elsewhere.
State and local employer obligations
In addition to federal payroll responsibilities, employers may need to handle state income-tax withholding and state unemployment insurance. Depending on the jurisdiction, they may also face workers’ compensation or temporary disability insurance requirements. These obligations are not uniform across states, so verify them where employees work.
Sales tax and nexus
A business with a physical or economic presence in a state may have to collect applicable state and local sales tax. Whether that presence creates sales-tax nexus—and which products or services are taxable—depends on the state’s rules. Online sellers should assess each relevant jurisdiction instead of assuming that their home-state rule governs all sales.
Property and franchise taxes
Property taxes may apply to business property under state or local rules. Some states also charge franchise taxes to corporations or LLCs. The name “franchise tax” does not mean the same tax applies to every business in every state; check the rules for the entity and jurisdiction involved.
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Quick Recap
Build a tax checklist for your business
- Identify the tax classification. Confirm your legal form and federal tax classification, then identify who files the federal income-tax return.
- Review income and owner earnings. Determine how income is reported, whether self-employment tax may apply, and whether estimated payments are required under the rules for the filing year.
- List your employees and work locations. Check federal payroll withholding, employer taxes, deposits, and reports, then verify state and local withholding, unemployment, and other employer requirements where employees work.
- Review what you sell or do. Check whether your products, services, equipment, facilities, or activities trigger excise tax or registration requirements.
- Map your locations, sales, and property. Identify the jurisdictions where you operate, have employees or property, or may have sales-tax nexus; check each relevant state and local authority’s rules.
- Confirm deadlines and filing-year rules. Use current IRS and state or local agency instructions for payment thresholds, deposits, returns, and due dates. Get qualified tax advice for questions that turn on your specific facts.
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