Employer and Small Business Tax Filing for Your Tax Prep Business

Professional tax preparer sits in front of a computer

As a tax preparer, you’re already well-versed in the tax laws that affect small business owners. This article is meant to serve as a guide to ensure you are compliant in your own business. From choosing a legal structure to collecting tax info for your employees, these four steps will help you follow federal and state tax regulations as a professional and as an employer.  

Choose your business structure 

The way you decide to structure your business is up to you, but it will determine which income tax return you need to file. Many tax preparers find that an LLC or a DBA (Doing Business As) works fine.  

Depending on the structure and where you are located, you may also be required to register with your state, and you will likely be required to have a business license. In fact, a business license is commonly required in most states, cities, and/or counties.  

For example, in Georgia, an LLC has an annual registration that must be filed with the State of Georgia. The LLC must also obtain a business license from Augusta-Richmond County. If the LLC was engaging in certain additional business activities, it might also have to obtain a license from Georgia to operate that supplementary business. 

Choose your tax year 

The calendar year begins January 1 and ends December 31. A fiscal year lasts 12 consecutive months and can end on the last day of any month (other than December). When it comes to reporting your own business income and expenses, you’ll need to decide what annual accounting period you will use. 

Apply for an employer tax number (EIN) 

If you employ a staff, you’ll need to obtain an Employer Identification Number from the IRS (Not to be confused with an EFIN). In addition, make sure that each team member completes a Form I-9, Employment Eligibility Verification, as well as a Form W-4, Employee’s Withholding Allowance Certificate.  

Report and pay any federal and state payroll taxes 

Note that as an employer, you are responsible for reporting the following payroll taxes: 

  • Federal income tax withholdings 
  • Employee and employer portions of Social Security (each portion is 6.2% of the employee’s gross wages) and Medicare (each portion is 1.45% of gross wages) 
  • Federal Unemployment Tax (FUTA)*  
  • State Unemployment Tax (SUTA) 
  • State income tax withholdings 
  • Local tax withholdings 

In addition, you’ll need to file these forms: 

  • Form 940 (due January 31; reports FUTA) 
  • Form 941 (due after each quarter; reports federal income tax and Social Security or Medicare tax withheld as well as the employer portion of these taxes) 

The best way to deposit federal taxes is through the Electronic Federal Tax Payment System (EFTPS). 

*FUTA taxes are due at the end of each quarter. If your FUTA liability is $500 or less at the end of the quarter, you can roll that amount over to the next quarter. If your FUTA liability is $500 or less at the end of the fourth quarter, you will make your payment when you file Form 940. 

Depending on the operation and location of your business, other business taxes may be applicable. 

Common deposit schedules for 941 taxes 

Form 941 must be filed after each quarter. Your deposit schedule is based primarily on your employment tax liability for the lookback period, which typically runs from July 1 to June 30. For 2020, the lookback period is July 1-December 31, 2018 and January 1-June 30, 2019.  

Here are the most common deposit schedules and when they apply: 

Quarterly 

  • Taxes must be deposited when you file Form 941 (must also file Form 941-V in this case) 
  • If total employment tax liability for the current or previous quarter is less than $2,500 

Monthly 

  • Deposit is due by the 15th day of the following month (i.e. January taxes are due by February 15) 
  • If total tax liability during lookback period was $50,000 or less 

Semi-weekly 

  • If your payday is on a Wednesday, Thursday, and/or Friday, taxes are due by the following Wednesday 
  • If your payday is on a Saturday, Sunday, Monday, and/or Tuesday, taxes are due by the following Friday 
  • If total tax liability was greater than $50,000 

Next-Day 

  • Due by the next business day  
  • If you accumulate $100,000 or more in taxes on any payday