4 Common Small Business Tax Questions and Answers

As a small business owner who wants to file your own taxes or gain a better understanding of what your accountant can do for you, you probably have a number of small business tax questions. You're not alone, and the Internal Revenue Service (IRS) has answered some commonly asked questions for the benefit of the business community.

1. Does a Corporation Have to File a Tax Form if It Received No Income?

It can take more than a year for a corporation to earn an income, and many years after for some corporations to turn a profit. The IRS wants the tax information about the corporation from day one, even when you don't earn any income. However, the tax laws restrict the agency to collecting that information only when tax filings are due. The answer, then, is yes, you have to file an income tax form for the corporation with the IRS, even if you don't make one penny.

2. When Does a Business Have to Issue Form-1099 to Contractors and Freelancers?

It's good practice to have contractors and freelancers fill out Form W-9 and return it to you before you pay them for services. When you pay a contractor more than $600, you must send Form 1099-MISC to the IRS, as well as to the contractor. If you're a book publisher, music company or other company that pays royalties, you have to do the same for payments of more than $10.

3. When Does a Company Need a Tax ID Number?

A sole proprietor does not need a tax ID number to file taxes; only his or her Social Security number is needed. However, it's a good idea to get one for other purposes, such as protecting yourself from identity theft. You may need to give your tax ID number to contractors, suppliers, vendors and customers. Other forms of business, such as limited liability corporations, corporations, limited partnerships and more need a tax ID number for the business.

4. Can a Husband-and-Wife Team File as a Sole Proprietorship?

If you're a part of a husband-and-wife team, you'll have to determine the right way to classify your business for tax purposes. You can each designate yourself as a sole proprietor if you file as a "qualified joint venture." Only husband and wife business owners can take advantage of this strategy, and you must file a joint tax return to qualify. The only drawback is that you may have to pay self-employment tax separately, and detailed accounting is required to separate your business interests and related income, gains, losses, deductions and so on. The other option is for one of you to become the owner of the business with both or either of you acting as the employee.

A competent accountant will guide you through all of your tax filings and answer all of your small business tax questions. A reputable tax planning and software program will incorporate a question-and-answer feature as well as give you the option to obtain support from a tax professional.