Here's How Your Taxes Will Change After You Start a Small Business

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Starting a small business or taking on a side gig can do wonders for your household income. But that entrepreneurial spirit does come with at least one negative: Filing your income taxes will become much more complicated.

How will your taxes change after you start a small business or take on a side gig? Here are five key ways. Make sure you understand all of them before you start filing your income taxes.

1. Say hello to estimated payments

Starting a successful small business will introduce you to the world of quarterly estimated tax payments. As the name suggests, you make these payments four times during the tax year. It's a way for the federal and state governments to ensure that you won't owe them big dollars every April 15.

Business owners who file as sole proprietors, partners, and S-corporation shareholders must make estimated tax payments if they think they'll owe $1,000 or more for the given tax year. Generally, your estimated tax payments, made to both the federal government and your local state government, are due April 15, June 15, September 15, and January 15 of the following year. (These dates might change if they happen to fall on a weekend or holiday.)

How much you pay each quarter depends on how much money your business makes. The IRS says that calculating your estimated tax payments requires you to first determine your expected adjusted gross income, taxable income, taxes, deductions, and credits for the year.

It's all complicated. And even if you take your time calculating a quarterly figure, there's no guarantee that you'll pay enough each quarter so that you won't owe your state or the federal government tax money at the end of the year.

Your best bet is to hire an accountant or tax expert to work with you to determine the right amount of estimated taxes to pay each quarter. (See also: What Freelancers and Side Giggers Need to Know About Income Taxes)

2. Self-employment tax can be a big hit

When you work for an employer, that employer withholds 6.2 percent of your paycheck for Social Security, and 1.65 percent for Medicare. Your employer also matches these amounts, meaning that, in essence, 15.3 percent of your income each year goes into Social Security and Medicare taxes on 92.35 percent of your net earnings (but as an employee, your employer splits the cost with you).

If you are running your own business or side gig, you are responsible for paying the entire amount. Make sure that you prepare for this by setting aside 15.3 percent of your net revenue throughout the year. This is money that you don't include in your quarterly estimated payments. Instead, it's due in April when you file your income taxes.

If you don't set aside this money, you might be scrambling to come up with thousands of dollars to send to your state government and the federal IRS. (See also: The 5 Biggest Mistakes Freelancers Make)

3. You'll have to become a master at tax deductions

Not all of the tax changes that come with owning a business are bad. Consider tax deductions. In general, you can deduct the cost of anything that you use to run your business. If you buy a new computer for your business, you can deduct the cost of it. You can deduct the cost of office supplies and health insurance. You can even deduct part of the costs of travel and business meals, as long as these trips and dinners really were held for business-related matters.

If you run your business out of your home, you can also deduct home office expenses. This means that you can deduct a portion of your utility bills, for instance, depending on the square footage of your home office. Just be careful with home office deductions. You actually have to use your home office only as an office. Don't try to trick the government. If you get caught taking a larger deduction than you actually deserve, you could face heavy fines.

Be honest about your business deductions in general. Don't try to write off an expensive meal if you only spent two minutes during it bragging about the success of your business. That doesn't count as a business expense.

Remember, too, that deducting something doesn't make it free. It just means you'll be paying a bit less for it. If you spend, say, $1,000 on new office equipment, your deduction — depending on your tax bracket — means you might only pay $750 for it. Don't treat tax deductions as an excuse for overspending. (See also: 7 Surprising Tax Deductions You Might Miss)

4. Goodbye, 1040EZ

Before starting your own business, you might have filed your income taxes using the 1040EZ or 1040A tax forms. Once you are running your own business or side gig, your tax form will become more complicated.

Most people starting new businesses operate these enterprises as a sole proprietorship. When you are filing in this category, you'll have to file your taxes with form 1040 while also including either a Schedule C (Profit or Loss from Business) or Schedule C-EZ (Net Profit from Business).

If you are responsible for paying self-employment tax, you'll also have to include a Schedule SE.

5. You'll probably need tax help

Odds are high that you'll need help from an accountant or tax-prep firm when filing your income taxes as a business owner. Taxes simply get more complicated, and making a tax mistake can cost you big in the form of missed deductions or penalties.

Hiring an account or tax-preparation firm isn't free. But it's usually an important investment for business owners to make. (See also: 14 Reasons Why an Accountant Is Worth the Money)