Recent reports have shown that the IRS have been increasingly targeting smaller businesses for tax audits, and if you’re not fully clued up on your taxes as the owner of a small business, this could have a devastating impact.
If you don’t understand corporate income tax rates, business tax deductions or what tax cuts you might be eligible for, you could struggle to get a clean bill of health when it comes to tax time. Here are a few important things that all small business owners should try to understand:
Select your legal structure carefully:
Talking to a tax professional can help you sort out what type of legal structure would best suit your business, as each has different tax implications. Sole proprietorships, S Corporations, C Corporations and Limited Liability Companies (LLC’s) are the options.
Lower your tax bill with tax deductions:
With additional expenses such as vehicles, wages, business travel, supplies, health insurance etc, there are ways of minimizing your business taxes by writing these off as operational expenses when it comes to tax time.
Write off the costs associated with your start-up:
Contrary to what many new business owners believe, the IRS does permit small business owners to deduct a wide array of start-up expenses before they become fully operational. Allowing you to deduct up to $5,000 in start-up costs, and up to $5,000 in organizational costs, but only if the total of your start-up costs are $50,000 or less. Engaging with a tax professional can help you to write off typical costs associated with setting up a new business, during tax time.
Pay taxes every quarter:
If, as a sole proprietor, partner or S corporation shareholder, you expect to owe taxes of $1,000 or more when filing federal or state tax returns, then you are required to make quarterly estimated tax payments, according to the IRS.
If you’re unsure how to calculate your estimated tax payments as a small business owner, it might be best to seek professional help from someone specialising in taxes.
Here are some of the taxes that you might be expected to pay as the owner of a small business:
- Self-employment tax
- Payroll tax
- Excise tax
- Sales tax
- Property tax
There are a whole host of errors waiting to be made by those new to the world of business – and some which can trip up even the most experienced of business people – so for that reason, it’s recommended to work closely with a tax professional to minimize the risk of receiving hefty penalties or incurring an IRS audit. Often able to save small businesses money, the amount that you invest in their services, can quickly prove to have been a sound financial investment.