Things You Should Know About Small Business Taxes

A small business owner’s most overwhelming task is tax filing. Dealing with the nuances of all that can be very challenging no matter the number of years of experience one has. For some, taxes can surpass the annual expenditure, which can even exceed the rent or loan payments they make. Additionally, there are various types of taxes to pay like income tax on profits, employment taxes and much more. There is a lot of preparation that has to be done before even preparing to file for it. Read below to learn the most important things to know about small business taxes: 

Types of taxes: One of the major tasks for a small business owner is the task of handling the accounting part. If you are new to this domain, you may not know that there are various taxes that need to be paid based on the type of business you run. Even as an individual taxpayer, you would have wondered why to pay taxes and would have reluctantly paid the state and federal taxes. But as a business owner, there are various other types of taxes that you will end up paying. The taxes that you pay may be based on the type of business you run and the ownership here are some of the common taxes that small businesses have to pay. 

  • Personal Income tax: If you are the sole owner of the business, you pay income tax on the revenue you earn. 
  • Payroll tax: This is to be paid when you hire employees and you have to deduct income tax from their payroll.
  • Fringe benefits tax: This is the tax paid when you provide your employee benefits like travel allowance, retirement benefits, etc.
  • Goods and services tax: This tax has to be paid when the turnover of your company reaches a specific limit and a GST has to be paid on the goods that are sold. 
  • Excise and customs tax: If your business imports or exports goods then this tax has to be paid.  
  • Corporate income tax: If you incorporate the business then the income generated from the company will be taxed as per corporate laws and income tax has to be paid accordingly. 
  • Capital gains tax: If your business makes a profit through selling off assets then the business owner is liable to pay a capital gains tax. 

Small businesses have to pay taxes quarterly: An individual taxpayer has to pay taxes annually but the same is not true for a business owner. Irrespective of the type of business you have to pay 4 times a year i.e. pay quarterly. That is one of the reasons to take the help of experts in the field like Travis W. Watkins Tax Resolution & Accounting Firm for filing taxes as well as for bookkeeping. A few other reasons to hire tax professionals are that companies have to make federal income tax payments that are deducted from employees, employee Medicare, social security and much more. Hiring a professional means no more missed deadlines. 

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Choose the business structure wisely: There are various legal structures in place and each has different taxes applicable. Choosing the right one is a big step that will help you make the correct preparation for paying your small business tax to avoid fines later.  There are 5 main legal structures and they are sole proprietorships, S corporations, C corporations, and limited liability companies (LLCs) and each has a different tax structure. 

  • Sole proprietorships: If you run a business as a sole owner, you should pay this tax and report profits and losses on your personal tax filing. 
  • S Corporations: Most small business owners choose this type of structure, as there are many tax benefits. The greatest advantage is avoiding double taxation. 
  • C Corporations: If you think that the business has the potential to become a corporation quickly then it is a good option. Moreover, it helps your company to raise funds faster as it looks more legitimate to investors. 
  • Limited Liability Companies (LLCs): The small business can take dual advantage of deductible losses and avoiding double taxation.

Use tax deductions properly: A small business is often cash-strapped as it has many expenses like wages, utilities, insurance and much more. While preparing the tax these expenses can be tracked and mentioned so that the federal tax is reduced. It also helps to claim tax deductions on operational expenses. Moreover, the IRS allows a variety of expenses to be written-off before the business becomes operational. 

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Taxes are not among the most favorite things for a small business owner but ignoring it can impact the revenue directly not to forget the legal complications associated with it. Pay attention to it all year long so that you are not in a fix during tax season.

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