What taxes do you have to pay when you own a small home based business?

Question

I am planning on opening a small business with in the next year. I am trying to find out how my taxes will change. Is it true that i will have to pay in taxes every three months? How is this calculated? What taxes will i pay (federal, state, S.S, medicare)? what percentage of my imcome will i have to pay each quarter? I have three children, will i still be able to claim EIC? Any and all info would be a huge help. Thank you

Answer 1

You have all the taxes mixed up. Having kids has nothing to do with it, or percentages or medicare etc. That all has to do with the taxes you file at the end of the year with the IRS.

With a home business it first depends on the state you live in. Where I live, I pay state and city taxes only on what I sell to people in my same state. I report my total income quarterly for the previous three months, but only pay taxes for my state and city sales.

When you pay depends on the business. I do pay mine to the state and city every three months, but it depends on the type of ownership. ie. sole proprietor, LLC, Corp and so on.

Example, if I made $3000. in three months but only had 1 sale in my state I would report $3000. in sales but only pay maybe $2.50 in taxes. This information will all be given to you when you get your license from the Department of Revenue. You can walk in to one in your area or apply for the license on-line.

And yes you can still claim EIC like I do.

Answer 2

If you have your own business, you pay pretty much that same taxes you would pay otherwise, except that you'd pay both the employer and the employee half of social security and medicare, so you'd pay 15.3%. Your income taxes will be figured the same as if you earned the money from an employer. And yes, you'll still get EIC as long as you meet the requirements, which are the same as for wages income.

You'll need to file quarterly estimated returns and make quarterly payments, since there won't be an employer deducting taxes from each paycheck.

Good luck with your business.