Tips on Small Business Taxes #business #success #money #taxes #bevhillsmag #beverlyhillsmagazine #beverlyhills

Tips On Small Business Taxes

When planning to start a new business it is important to take a couple of things into consideration for a smooth and successful venture. One of those that often gets overlooked is the tax implications that come with starting a new business. Business taxes can get complicated and seeking the counsel of an experienced tax attorney can help minimize the stress behind choosing the structure and tax treatment of your company. A tax lawyer can also advise you on non-tax issues that you may not have considered, which can be especially helpful if you intend to engage in international business. Below you will find some helpful tips regarding small business taxes to help you plan ahead and save some money. (Image Credit:  Steve Buissinne/Pixabay) 

Types of Taxes Businesses Pay

The tax requirements you must adhere to depend on the type of legal structure you decide to form. Whether it be a sole proprietorship, S corporation, C corporation, or limited liability company (LLC), below is a list of the most common taxes small business owners pay.

  • Income Taxes – This applies to all businesses, except partnerships that must file an information return. You will also have to annually file an individual income tax return using IRS Form 1040.
  • Estimated Taxes – These are quarterly estimated tax payments to cover income tax on income exempt from withholding and self-employment tax. You may have to pay a penalty if your estimated payments fail to cover your annual tax liability.
  • Self-employment taxes – This tax covers social security and medicare taxes. It only applies to sole proprietors, general partners, and single-member limited liability companies.
  • Employment Taxes – You must report and deposit federal income tax withholding Social Security, Medicare taxes (FICA), and Federal Unemployment tax if you have employees. Typically the amount is 15.3%,  your employees will pay 7.65% while you are responsible to cover the other 7.65%.
  • Sales taxes – It may be required of you to collect these taxes on sales and send them to your state and possibly any other states in which you do business.

4 Underrated Tax-Saving Tips

  1. Register your business as a limited liability company (LLC) – Many small businesses don’t take advantage of researching the benefits of becoming an LLC. If you qualify, you could file an S Corporation Tax Election (Form 2553) deducting a majority of your self-employment taxes among other benefits.
  2. Deduct your home office – This applies to both renters and homeowners, but you must meet the IRS regulations in order to qualify. The office space in your house must be used on a daily basis and exclusively for business. It should also be your primary place to conduct business. You may still qualify even if you work outside your home, as long as you use your home office considerably more often. In order to figure out the percentage of home expenses deductible for your business, you must measure your work area and divide it by the square footage of your home. That is the fraction of rent, mortgage, utilities, taxes, and maintenance you can potentially claim.
  3. Deduct your car expenses – You can deduct a small number of cents per mile driven for business purposes, even if its a personal vehicle. If you only have one vehicle, you can’t justify that as purely a business vehicle, so you will have to purchase a work vehicle and make sure it is only used for work. The auto expense deduction doesn’t only apply to business miles. It can be applied towards mileage driven for medical and charitable purposes. Over the course of the year, this can really add up and affect the amount of taxes you’ll owe.
  4. File taxes on time – This seems like a no brainer, but it really is in your best interest to file a tax return on time, even if you know you cannot pay the tax. It will reduce penalties in the long run. The IRS can institute late filing and late payment penalties according to the type of business you own. C corporations can be fined a late filing penalty and a late payment penalty on any unpaid tax due. Partnerships can be fined a late filing penalty based upon the number of partners. S corporations can be fined a late filing penalty based on the number of shareholders as well as a late payment penalty on any unpaid tax due. These can get quite costly for any small business, so it’s better to avoid them altogether by filing on time.

No matter what type of legal structure you decide to use for your business, it is imperative that you educate yourself on the tax implications. Try incorporating one if not all of these strategies into your business model in order to save yourself and your business at the end of the year. Being well informed and prepared will allow you to continue focusing your efforts on building and expanding your business and your future.

*This should not be construed as tax or legal advice. Everything is case by case. If you would like more information contact a tax attorney directly.*

Jacqueline Maddison

Jacqueline Maddison

Jacqueline Maddison is the Founder and Editor-in-Chief of Beverly Hills Magazine. She believes in shining light on the best of the best in life. She welcomes you into the world of the rich and famous with the ultimate luxury lifestyle.

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