When it comes to small business taxes, most people are in the dark.
The time comes to file, and they have no clue what to do. The truth is, waiting until the last second to figure taxes out is never a good idea. Instead, good tax-keeping practices involve staying on top of your financials all year long.
If you own a small business, it’s essential to understand what you can and cannot do. The more you know, the easier it’ll be for you to qualify for lucrative deductions and more. Plus, you’ll be able to avoid having anyone rip you off simply because you don’t know the rules.
This blog post will teach you some essential tips and tricks that can save you a lot of money in the long run! Read on to learn the best way to file taxes as a small business owner.
Grasping Business Tax Liability
Do you need an accountant for small business taxes? Could you save money and file your taxes by yourself?
It depends. Here’s the deal: Accountants are professionals who make it their full-time job to know about all the tax laws that apply to small businesses.
Experienced accountants can help you take advantage of loopholes and other money-saving opportunities. They’ll also be able to help you avoid lawsuits by understanding how business tax liability works.
On the other hand, if you want to avoid the expense, you can file independently. You’ll need to take your time and triple-check your work. You can also take advantage of sites like www.taxfyle.com/small-business-tax-filing to help you get ahead.
All About Investors and Loans
Small businesses often rely on money from investors or loans startup. However, if your company is incorporated, that money could be taxable income. This holds even when you’re not generating any revenue yet.
On top of that, interest payments resulting from someone lending you money could also result in additional taxes. It all depends on how much was paid and who gave the money, to begin with.
What Is Taxable for a Small Business Owner?
What qualifies as taxable income for a small business owner? For one, when you sell something for profit, the IRS considers it taxable income. This holds whether you’re operating as a sole proprietorship or through an LLC.
Did you establish your business and file the necessary forms? Next, you’ll need to keep track of any changes in your financial life by filing updates with relevant agencies like the IRS.
Do you operate a company that relies on a tipping system, such as waitressing? Then you’ll need to brush up on IRS regulations involving tipping.
Top Accounting Mistakes to Avoid
What are the top mistakes small businesses make when it comes to taxes?
First, not understanding the difference between a sole proprietorship and an LLC can be costly. In either scenario, you will have to pay taxes, but if your business is an LLC, you should also pay yourself a salary.
Learn what deductions are compatible with both entities. This is essential for maximizing tax benefits and reducing the overall amount owed.
The second mistake small businesses often make involves how they file their taxes in general. Suppose you’re self-employed or run a small business that’s incorporated.
For incorporations, you’ll need to file a Form 1040 along with Schedules C (Profit & Loss from Business), E (Supplemental Income), and SE (Self-Employment Tax). But before filing anything at all, make sure to calculate your estimated quarterly taxes.
Finally, if you’re a business owner with an S-Corp, you will need to file a 2553 form. This is important because it ensures that most of the yearly profits from your business won’t be subject to corporate income tax ever again.
To qualify for an S-Corp designation, though, there are specific requirements you must meet. For one thing, all shareholders in your company must receive wages, and these wages must be at least reasonable amounts when compared to other employees in similar positions within the industry.
Furthermore, all active owners in your company have to receive salaries from their corporations. Additionally, the pay cannot be less than what’s necessary for the corporation’s survival.
Keep Thorough Records Throughout the Year
Keeping track of everything for taxes can be incredibly time-consuming, so it’s best to get started early. That way, you have more time to figure out how much money should be withheld from your paychecks too.
To make your life easier, we suggest investing in high-quality payroll software. If the idea of using software sounds intimidating, don’t worry.
The payroll interfaces are intuitive, meaning they’re easy to navigate. You’ll be able to keep track of all of your employees paychecks, along with your business expenses.
The golden rule of small business accounting is to separate personal expenses from business costs. You can still deduct business-related expenses on your tax return, but only if you give the IRS a good reason by using what’s called an accountable plan.
What kinds of things are considered to be accountable plans?
First, your company must have paid for it by check or credit card. Next, employees have to document or receive more than $75 in expenses. Finally, all items need to be returned when the job is complete or within a specific timeframe.
Additionally, you’ll want to keep track of receipts for every expense that your company incurs. Then store them for at least three years or longer if the IRS ever audits you.
Taxes for Self Employed Workers
The critical thing about self-employed workers is that you can deduct expenses from your taxable income. These deductions are essential because they reduce the amount you have to pay in taxes.
The IRS offers several resources designed to educate small business owners about what they’re exempt from paying. premium payments related to individuals and their family members don’t count when it comes to health insurance.
What other deductions are available to self-employed workers? For one, if you’re a writer or blogger, you can claim your home office as a deduction. The same holds for driving expenses too.
Before signing up for any business credit card, though, take time to learn about what types of purchases are deductible. Once again, these rules differ depending on whether your company is an S-Corp or a sole proprietorship.
Conquering Small Business Taxes
As you can see, there’s a lot to know about small business taxes. That said, it doesn’t have to be scary! Many resources will help you get started, and an expert is just a phone call away if you need further guidance.
What is your favorite resource for small business tax information? Do you use payroll software or any other apps?
Try a payroll demo today to see if it’s right for you. To get more tips, check out the rest of this site!