Starting an Online Business All-in-One For Dummies®, 3rd Edition

The Tax Man Cometh — Again and Again

You've probably heard the saying that nothing in life is certain except death and taxes. Suffice it to say that the latter is at least predictable. As a business owner, you can count on the tax man regularly showing up on your doorstep. Rain or shine, without fail, taxes come due at certain times of the year whether you like it or not.

In Book II, Chapter 1, we give you a glimpse of what to expect of the tax man when we discuss the pros and cons of various ownership structures for your business and how each form is taxed. Regardless of which type of business structure you choose, you face many tax-related requirements when you run an online business.

For starters, several types of federal and state taxes are likely to apply to you, as we describe in the next few sections.

Income tax

You pay income tax on the money your business earns. Almost every type of company has to file an annual income tax return. (The exception is the partnership, which files only an information return.)

The important thing to know is that federal income tax is a pay-as-you-go system — the IRS doesn't want to wait until the end of the year to receive its cut of your money. Instead, you must pay the amount of taxes that are due every quarter. Because you don't always know the exact amount to pay in time to file by the IRS deadline (maybe an overdue invoice comes in at the last minute or a refund has to be issued), you can estimate the tax amount for each quarter and then ...