Identifying Potential Tax-Related Issues | SmartBiz University

As a small business owner, you have tax requirements that need to be met when applying for a business loan. Learn what you can expect so you’re prepared for your loan application process.


Business Structure and Tax Requirements

Your small business is required to pay taxes and manage finances on a yearly schedule called a tax year. You can choose to align to several different options:

  • Calendar tax year: 12 months starting on January 1st and ending on December 31st
  • Fiscal tax year: 12 months which end on the last day of any month except December

The tax year you use will go into effect the first time you file your business taxes. You’ll have the ability to change if necessary by filing a request with the IRS. Learn more about tax years and IRS requirements.

Depending on how your small business is structured legally, you’ll face different tax types and rates. For example, corporations are subject to a corporate income tax, LLCs get taxed separately from the owner, and sole proprietorships have their personal and business taxes on the same form.

You may also encounter other kinds of taxes, such as the sales and use tax, if you sell goods. Even though most retailers pass the tax along to the customer, you’re still responsible for making the payment to the government. If you have employees, you’ll also have to handle the employment tax and withhold Social Security, Medicare, and other income taxes from their salaries. Another charge you might be expected to pay is a property tax on equipment and commercial real estate, depending on your local government’s policies.

Common Concerns

The following are some of the most common areas where small business owners might run into tax-related headaches.

Underpaying Taxes

Not paying the full tax amount can cause issues for your small business finances. Some important considerations to keep in mind are that you’re still responsible for taxes like a sales tax that you pass along to other parties, like customers.

In addition, business owners often overlook filing quarterly tax estimates not knowing they are actually mandatory. Every quarter, self-employed business owners have to estimate their federal and state income tax payments, and pay them to the IRS and state treasury. Make sure you plan to make this payment or you may face a tax penalty and cash flow problems down the line.

Poor Record-Keeping

Without good documentation of your business financials, it’ll be difficult to stay on top of your tax liability. Consistent records of your income and expenses will help you estimate your tax payment and get a clearer understanding of what to expect when filing season comes around.


Another important point to keep in mind is that it can be easier than you think to misclassify your business, your employees, or both. For example, there are instances where small business owners unintentionally classify a full-time employee as a contractor or vice-versa. Keeping a close eye on the seemingly minor details will help you avoid the potential consequences.



Next Steps

The good news is that most of these issues can be managed effectively. With a good understanding of what’s expected of your business, you can prepare to address any questions that come up before they become issues. Here are some of the measures you can take.

Hire Help

One of the ways to help you avoid potential problems is hiring a tax professional that will help you manage and understand all your obligations, especially when there are changes in legal requirements

Not sure if working with an accountant is the best option for you? Here are some pros and cons for you to consider – Small Business Taxes: Self-File or Use a Professional?

Take Your Paperwork Seriously

Bookkeeping is one of the best ways to identify where your income and expenses are coming from. Make sure to save all your receipts, files, and workbooks to have available documentation on what you used to file your taxes.

In addition, staying up-to-date with your transactions throughout the year will help prevent any surprises when you’re filing your taxes. That way, you’ll have a regular estimate of your payments and can use the documentation to back up any deductions you’re planning to claim.

Find more helpful bookkeeping tips on the SmartBiz Small Business Blog.

Be Thorough and Timely

When you’re in the process of filing, make sure that you’re submitting your business and personal taxes on time and not missing any items. You don’t want to run the risk of finalizing any steps too late, so give yourself enough time to complete the required documents and double-check your work before submitting.

Need extra time? You can file for a tax extension. This option must be approved by the IRS before Tax Day and can give you some more breathing room to get all your paperwork organized. Note that an extension to file taxes is not an extension to pay them.

Head to the IRS to find all the relevant documentation if you’re looking to get a tax extension approved.

These tips also apply when getting ready to qualify for any small business financing, like a SmartBiz SBA loan. By keeping your records tidy and preparing in advance, you’ll be able to progress through the application more quickly.

Before you apply for an SBA loan through SmartBiz Loans®, get started with SmartBiz Advisor*. You’ll receive actionable, personalized insights that can help you strengthen your lending profile based on key criteria our bank partners look for. This online, educational tool acts as your Intelligent CFO™, free of charge.


* The information provided through SmartBiz Advisor, including the Loan Ready Score, is for educational purposes and is not the same as scores used by lenders for credit decisions. SmartBiz Advisor is not a financial or legal advisor as defined under federal or state law. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.

 What you need to know: The information provided through SmartBiz® University and the articles contained therein are for educational purposes only. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.