One of the surprises for many new business owners is the myriad tax obligations that come with the territory. Government agencies from Washington, D.C to city hall have their hands out and it's your duty as a business owner to know what you owe and to file returns properly. A mistake can be costly, resulting in late payment penalties or worse. Avoiding taxes can be considered a crime with serious consequences if you're caught. On the other hand, proper preparation can make the task go smoothly, and savvy business owners can cut their taxes by taking all available deductions. A good knowledge of your business taxes can: Insure your business runs smoothly. Keep government tax auditors away. Save you money through proper use of deductions. Prevent time-crunch headaches whenever a tax deadline approaches. Work your way up One way to figure your tax obligations is to start at the local level and work your way up. Check with your local city or county to determine what licenses and fees you must pay, plus what property taxes you may owe on your business. Then work your way up to state and federal taxes. Understand your federal tax obligations As a business owner, you'll need to report business income, take business deductions, claim tax credits, collect payroll taxes if you have employees and file at the right times. A good accountant is invaluable in helping you deal with your federal tax obligations. But it's important that you understand the basics to help guide the tax preparation process so you don't miss tax breaks or deductions. IRS has an overview and links for business taxes, including links to tax forms. Understand your state tax obligations Dealing with state taxes can be a major chore, especially if you have retail sales and must collect sales taxes. Sales taxes vary not only by state but by county and city, so it's important to collect and file the correct amounts. In addition you may owe state income taxes and have state payroll deduction obligations. Tax and Accounting Sites Directory offers a page of links to states where you can read discussions of tax obligations for your particular state. The Federation of Tax Administrators offers links to taxing authorities by state. Understand your payroll tax obligations You'll need to determine which of your workers are considered employees subject to withholding and what compensation is taxable. U.S. Small Business Administration's Payroll Taxes page has overviews and links to federal and state taxing agencies. Keep track of taxes It helps to keep up-to-date files and records throughout the year to make sure you don't wind up frantically hunting on deadline. Accounting and tax software can help keep you on track. A good software package should also include the forms you'll need to file. Your accountant is there to provide guidance, not just to file your taxes. Ask questions if you're unsure about any aspect of your taxes or deductions. Don't miss deductions or credits. Check in with tax blogs and the IRS site for updates on tax issues to make sure you take advantage of new deductions and tax credits. Save your records. You'll need to keep financial records for extended periods of time. Check with your accountant for help in what records you need to keep and for how long. Take an extension. If you hit a filing deadline and you're not ready, check with the filing agency on rules for filing for an extension.