Tax and Accounting

It is essential for small business owners to understand federal, state, and local tax and accounting requirements. This knowledge supports accurate record keeping, proper tax filing, and timely payments to government agencies. Although small business owners may consider themselves experts in their field, running a business also requires managing critical administrative responsibilities. Among the most important of those are tax and accounting obligations. Failing to file or pay required taxes can lead to financial penalties and interest on outstanding amounts. Tax and accounting for small businesses can be complex; our guide provides a starting point with key resources and information to help you navigate next steps, including consulting a tax professional.

View our related small business guides here: Finance, Business Valuation, Employee Ownership, Succession Planning

You can also receive free professional business advice and free or low-cost training from your local Small Business Development Center!

Small business owners benefit from focusing on these five important items that affect small business taxes:

Business Structure
Tax deductions
Startup costs write-offs (Deduct up to $5,000 in startup costs only if total startup costs are $50,000 or less)
Pay quarterly taxes
Keeping track of the amount of taxes due/refunded

Review key tax calendar dates using the IRS Tax Calendar. Exception: If your enterprise’s fiscal year does not start on January 1, follow the IRS fiscal year due dates. Be sure to also review tax due dates by business type.

IRS Tax Guides for Small Businesses

As a small business owner, understanding your federal, state, and local tax obligations is crucial. The Internal Revenue Service (IRS) provides information to help small business owners when filing their taxes. The Small Business and Self-Employed Tax Center is the main resource for entrepreneurs. Additional resources from the IRS include:

Types of Taxes – provides the five general types of business taxes and their tax forms
Workshops, meetings and seminars – helpful tax resources for small businesses, per state.
Online Learning and Educational Products – links to virtual tax workshops and SBA Learning Center
Checklist for Getting Started – resources for new/prospective business owners and checklist for starting a business
Industries, professions and business tax centers – specific business and industry tax centers
State Government Agencies – links to each state’s official website and guidance on doing business in that state
Sale of a Business – tax guidelines for a business sale.
IRS Guide for Small Businesses – federal tax laws that apply to a self-employed person or statutory employee.

Accounting Methods

There are two primary accounting methods for businesses to report revenues and expenses – cash accounting and accrual accounting. It is important to understand the difference upfront, as once you have selected a method, the IRS requires you to maintain that for the duration of your business unless you get an exemption from the IRS to change your method. Cash accounting is an accounting method that records and tracks financial information by the actual flow of cash in and out of a business. It only records income when you receive or pay cash. Alternatively, the accrual accounting method records revenues and expenses when they are billed and earned regardless of when the money is received and paid. Per the IRS, small businesses with average gross receipts of $25 million or less in the prior three-year period, such as beauty salons, daycares and cleaning services, are allowed to use the cash method of accounting.

Cash vs. Accrual-Basis Accounting – explanation in addition to pros and cons
The Basics of Cash Flow Analysis – what a cash flow analysis is and how to read a cash flow statement
How artificial intelligence can transform accounting – benefits and risks of AI in accounting methods

Tax Software

Small business owners may be overwhelmed when it comes to selecting software to prepare their tax returns or identifying tax professionals. Some key features to look for in tax software include budget-friendly, ease of use, real-time access to tax professionals, IRS-authorized e-filing return options, and data security.

Some of the most commonly used tax software includes:

Accounting Software

Modern accounting software helps businesses track their revenues and expenses, automate bank reconciliations, categorize transactions, and maintain detailed and accurate books. This system is especially important for small businesses.

Some of the most common accounting software for small businesses include:

Cloud-based accounting software is on-demand software hosted remotely for recording and storing encrypted financial data online. Generative AI has influenced many accountants to utilize artificial intelligence tools to automate work that is usually completed manually. This has resulted in a major demand for cloud-based accounting that implements AI and automates much of the routine manual tasks. A recent Stanford Business survey shows that accountants who use artificial intelligence can support more clients each week and complete monthly statements 7.5 days faster than those relying on traditional methods.

The Basics – guide on cloud-based accounting and choosing a platform
Emerging Technologies – how AI and new tech is transforming accounting
Sage Business – an example of a cloud-based accounting software

Regardless of the tax and accounting software vendor that you utilize for your business, be sure to understand their cybersecurity safeguards.