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Paying your taxes

RETURN to Small Business Resources

Paying taxes as a new small business owner in Ohio isn’t one single task—it’s a system you set up early and then manage consistently. Here’s how to approach it in a clear, practical way.

1. Understand which taxes apply to you

Your obligations depend on your business structure and activities:

Federal taxes (IRS)

  • Income tax (all businesses)
  • Self-employment tax (if you’re a sole proprietor, partner, or LLC taxed as such)
  • Payroll taxes (if you have employees)

Ohio state taxes

  • State income tax (for pass-through income)
  • Commercial Activity Tax (CAT)
    • Applies if gross receipts exceed $150,000 annually
  • Sales tax (if you sell taxable goods/services)
  • Employer withholding tax (if you have employees)

Local taxes

  • Most cities in Ohio charge municipal income tax (even small towns)
  • You may need to file where your business operates and where you live

2. Register with the right agencies

Before paying anything, make sure you’re properly set up:

  • Get an EIN from the Internal Revenue Service (if needed)
  • Register with the Ohio Department of Taxation
    • This is where you handle sales tax, CAT, and employer withholding
  • Check your local city (Lima) tax office (many use RITA or CCA systems)

3. Set up a system to track income and expenses

Taxes get easy or painful depending on this step.

  • Use accounting software (QuickBooks, Wave, etc.)
  • Track:
    • All income
    • Business expenses (mileage, equipment, marketing, etc.)
  • Keep receipts and documentation

This ensures you only pay tax on net profit, not total revenue.

4. Pay estimated taxes (very important)

If you’re not an employee, taxes are not automatically withheld.

You’ll likely need to pay quarterly estimated taxes to:

  • The IRS
  • The state of Ohio

Typical due dates:

  • April 15
  • June 15
  • September 15
  • January 15 (next year)

Miss these and you can face penalties—even if you pay in full later.

5. Handle sales tax (if applicable)

If you sell taxable goods/services:

  • Collect sales tax from customers
  • File returns (monthly or quarterly) with the Ohio Department of Taxation
  • Pay what you collected

Important: Sales tax is not your money—you’re holding it for the state.

6. Pay the Commercial Activity Tax (CAT)

If your business grosses over $150,000/year:

  • Register for CAT
  • File returns (annual or quarterly depending on revenue)
  • Pay tax based on gross receipts (not profit)

7. File your annual returns

At the end of the year:

8. Consider hiring a professional early

A CPA or tax professional can:

  • Help you avoid overpaying
  • Ensure compliance with Ohio + local taxes
  • Advise on deductions and structure (LLC vs S-Corp, etc.)

For many small businesses, this pays for itself quickly.

Common mistakes to avoid

  • Not setting aside money for taxes (a good rule: 25–30% of profit)
  • Missing quarterly payments
  • Ignoring local city taxes
  • Mixing personal and business finances
  • Not tracking deductions properly

Simple mental model

Think of it like this:

  • Track everything
  • Set aside money regularly
  • Pay quarterly
  • File annually