Depending on your business, you’ll face a host of other tax challenges as you get your enterprise going. Here’s a run down of just a few.

Self-employment tax
Perhaps the most overlooked liability for startups is the self-employment tax.

Employers send an amount equal to 15.3 percent of an employee’s wage to the federal government for Social Security and other payroll taxes. Half comes out of the employee’s paycheck. Half the company pays. The employee sees neither.

Now that you’re on your own, you get to pay the whole tab.

The self-employment tax can exceed income tax for many startups. Personal deductions won’t reduce this tax liability, but business deductions will.

Tip: Include self-employment tax when calculating estimated quarterly payments.

Sales tax
If you sell taxable goods, your state or local jurisdiction may have a sales tax. You’re obligated to collect it and pass it on to the appropriate government agency. If you buy material for resale, you probably need a government permit to avoid paying sales tax.

Sales taxes can be more complex than the IRS code. They’re complicated by differences between merchandise and labor, whether they are itemized and other considerations. Do your homework before you make your first sale.

Tip: Don’t report collected sales tax as income. It’s a liability you must pay.

Friendly IRS
The IRS won’t give you the inside scoop on tax loopholes. They will give you the rules. It’s up to you (or your tax preparer) to figure out your legally required minimum tax liability.

Learn the rules. Get what help is available from the IRS, which has extensive free publications. Attend tax seminars.

When dealing with the IRS, remember its employees are people. A chip on your shoulder invites a reaction. They are there to enforce the law, not to help you avoid taxes.

If you’re not complying, there will be penalties. If you aren’t smart enough to learn the law, it’s your problem. The same goes if you aren’t smart enough to hire professional help for what you can’t master.

Crossing borders
If you ship products from or have employees or an office in another state, or if you personally conduct business in other states as many consultants and public speakers do, you may have to allocate taxable income between them on a percentage basis, and file separate income tax returns in each state.

Business property taxes
In some states business property taxes are assessed annually on the depreciated value of things like machinery or desks. Your home office may be subject to these taxes, which must be filed annually, often with the county tax assessor’s office.

Cash flow
Your tax liabilities aren’t spread evenly throughout the year. In the spring, cash flow can get dicey. On April 15, you have to pay anything still due on the prior year’s income taxes as well as the first quarterly federal and state estimated taxes—and then have only two months until you must pay your second quarterly estimated taxes.

1099s
Many solo practitioners receive the familiar 1099s. Companies send 1099s to the government and to individual contractors (not corporations) by January 31 if they were paid more than $600 for services the previous year.

Some solo practitioners don’t realize that they’re required to issue 1099s. Failure to do so can result in penalties. If you’re audited, you can be fined for each un-issued 1099, and your deduction for that expense can be denied.


Overwhelming? That’s why there are tax preparers and accountants.