What Your Small Business Needs to Know About Tax Law

Small businesses are subject to tax laws just
like larger businesses, which is why knowing about them is important. Taxation
applies to virtually everything that a business or a company sells. This
includes both products and services, as well as, how they are taxed to the
consumer. Every business has to comply with local, state, and federal tax laws
as a part of its operations.

Depending on the size and earnings of a
business, some owners opt to keep track of their own financials. This means
purchases, inventory, payroll, and various other areas that involve taxes. Once
the year is up, it is necessary to file business tax returns. There are some
things that can be written off and other expenses that cannot. The IRS provides
business owners with direction as it relates to these guidelines.

There are challenging concepts to understand
when it comes to properly file taxes. This is one of the reasons why businesses
hire accountants for their services. These are experts that know how the laws
apply and are aware of the changes that involve business operations. Each year
there are different rules and applications for taxation that must be
accommodated when filing returns.

Here are some things to be aware of tax law as
a small business owner:

Consider
the Formation Phase

QuickBooks encourages people who want to start a business to consider a few things like formation in advance. It is possible to determine the type of business, as well as, your potential tax burdens before you start. This is also important when it comes to maximizing your overall deductions and reducing liabilities. Some will decide to start an LLC, while others select an LLP formation. Conduction adequate research is helpful in this process.

Lower
Tax Bills by Using Deductions

There are many expenses associated with
operating your small business that can be written off. These may cover
activities, such as transportation, stocking inventory, and simply attending
business events. Here are some of the things that typically fit into this
category:

* Equipment

* Utilities

* Property Insurance

* Hiring Contractors

Keeping track of these expenses throughout the
year makes it easier when tax season comes around. This includes keeping
receipts and using financial software to assist with maintaining your records.

Deduct
Your Home Office

There are some small businesses that are
operated solely from home offices. According to Entrepreneur,
there are expenses that can be written off by using this residential space for
business. In order to enjoy this benefit, it is necessary to determine how much
of the home is being used for your small business. There are instances where
utilities and insurance payments can be written off, as well.

Purchase
Equipment Wisely

One of the important areas that many small
business owners are concerned with has to do with equipment. These may be
electronics, computers, printers, and a variety of other items. According to
the IRS code, it is possible to declare this equipment as an expense.
Calculating the depreciation is a helpful way to learn more about this and what
benefits apply.

Keep
Track of Startup Costs

It doesn’t matter whether your business is a
bakery or a medical practice. Keeping track of all of your startup costs will
be very important. The IRS allows you as a small business owner to deduct up to
$5K in startup costs. This may include office space, equipment, supplies,
employee training, and an array of many other necessary things.

Pay
Your Taxes Quarterly

Fortunately for diverse small businesses,
there are a number of ways to comply with tax laws. As a small business owner,
you may decide to pay your taxes in the traditional way, on an annual basis. If
you have determined that your taxes will be $1K or more, paying quarterly may
be the better approach. Form 1040 ES is available online to assist with
estimating these tax payments.

No one knows all of the necessary information
about small businesses and tax laws. There are many details that will be
learned as the year’s pass. It is possible to find a CPA or a tax
attorney
in your area that offers a free consultation. These
professionals are a wealth of resources and can help you start off on the right
foot. As your business grows and expands, you may opt to hire these financial
experts to take care of all of your financials and tax needs. Until this time,
gathering information will enhance these processes.

Alex
 

Alex is a small business blogger with a focus on entrepreneurship and growth. With over 5 years of experience covering the startup and small business landscape, Alex has a reputation for being a knowledgeable, approachable and entrepreneurial-minded blogger. He has a keen understanding of the challenges and opportunities facing small business owners, and is able to provide actionable advice and strategies for success. Alex has interviewed successful entrepreneurs, and covered major small business events such as the Small Business Expo and the Inc. 500|5000 conference. He is also a successful entrepreneur himself, having started and grown several small businesses in different industries.