If you are thinking of putting up a new business or have already started one up, you should be aware of the tax laws that come with it. You should be armed with knowledge about business tax from the start to ensure that your business does not run into problems with the IRS.
To help you out, here are 10 things that you should know as a business owner about taxes and your business:
- Your business structure will affect your taxes – the kind of business you are running will have an impact on how much you will pay in taxes. For example, if you claim your business as a sole proprietor, you pay taxes via trough an individual tax return. If you register your business as a C-corporation, you not only pay taxes at the entity level but you also pay taxes on individual returns on your earnings.
- Keep accurate records – you will find that keeping track of every single penny spent on your business will benefit you greatly when deduction time comes along. Your tax accountant can then weed through your records to see which expenses can be deducted from your taxes.
- Know what types of employees require you to shoulder more taxes – when hiring people for your business, you should know which types of employees obligate you to pay taxes for them. For example, if you have independent contractors on your payroll, they are responsible for their own taxes. If you have employees working for you, you have to pay certain taxes for them as their employer. This has to be done in accordance with certain tests to determine whether an employee can be a subcontractor.
- Do your research well when trying to reduce your taxes – some people try to reduce their taxes by running their business from home rather than from an office. There is actually a home office deduction that you can use to reduce your business tax further but if you want to take advantage of this, you have to make sure that you indeed have a separate space for your business in your home and not a combined use room for it. For example, your dining room cannot be claimed as your home office since it functions as your family’s dining area during non-office hours.
- Don’t let your accountant do all the work alone – while you do rely on your tax accountant for a lot of things, you should not let them do everything alone. When it comes to reading what is in your returns, you should both review what is in it. This will help you understand where your money is going and will help you figure out a better strategy for the coming year to give you a better income tax return.
- Find out your tax rights from the start – if you want to fully maximize the reduction of your taxes for your business, read up on start-up taxation and international business tax law so you can see where you can get more deductions for your taxes. For example, for start-ups, you can get write-offs for your first year.
- Don’t hesitate to ask questions – your accountant is there for you and if you don’t understand one or two things regarding your taxes, you should not hesitate to ask them for explanations and clarifications. You might have the best CPA in the business helping you out but if you can’t ask them to explain to you stuff you don’t understand, you might be missing out on learning more about your business.
- Find out what promotional work can be considered deductibles – promoting your business will help it grow and earn, and guess what? It can also be considered part of the cost of building your business. What you pay website makers, social media professionals, and content creators can be considered advertising costs for your company so these can be considered deductibles too.
- Know your tax payment schedule as a small business – did you know that small business actually pay taxes in small increments 4 times a year? While this is not necessary for your first year and is not common knowledge, your tax accountant will know this. Be prepared to do this the year after you begin your business.
- Don’t try to do your taxes on your own – there is a reason why people depend on professionals to take care of their business tax needs, and that is so they can focus on their business and not worry about tax processes and the like. Trust your tax needs to a professional and work with an experienced accountant so you can focus more on where you are needed the most, and that is at the helm of your company.
