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.
