Taxes for Small Businesses: 5 Things You Need to Know

VWB Blog 3 years ago 0

Are you confused with taxes for small businesses?

You aren’t alone since about 20% of American establishments have no clue about their tax rates. Your lack of knowledge isn’t an excuse. If you want to avoid legal trouble, learn how to pay your business taxes.

Fortunately, our guide discusses some facts about this subject. Read on and learn more now:

  1. Your Legal Structure Matters

When founding your business, be aware of the existing legal structures for businesses. Each will have its specific tax implications. Here are your choices:

  • Sole proprietorships
  • S corporations
  • C corporations
  • Limited Liability Companies (LLC)

Sole proprietorships are the most common businesses entities in the United States, with over 23 million establishments. It’s straightforward but risky since you’re responsible for all legal obligations.

  1. Use Tax Deductions for a Lower Bill

As a new owner, stretching your finances is a must. After all, you have various expenses like wages, supplies, and equipment. To prevent bankruptcy, take advantage of deductions during tax seasons.

Look for tax lawyers that assist individuals or small businesses. They know the expenses you can deduct from your taxes. Couple it with tax preparation software to automate your deduction claims.

  1. Write Off Startup Costs

A lot of initial business expenses are deductible before your business opens. The IRS allows you to deduct up to $5,000 in startup costs and $5,000 in organizational costs. It only applies when your total costs are below $50,000.

These are the typical costs for setting up your business:

  • Insurance
  • Real estate
  • Supplies
  • Business assets

Taxes for self employed people working from home are deductible as well. You must ensure these expenses lead toward forming a viable business. Otherwise, the IRS writes it off as personal expenses and makes you pay.

  1. Pay Your Quarterly Taxes

Use Form 1040-ES to determine your tax payment estimates. Your last year’s income, deductions, and credits are also viable references. After discovering the number and e-file, pay the IRS using the following methods:

  • IRS Direct Pay
  • IRS Pay By Card
  • Paying by phone

Small business taxes are applicable unless you lose money. If you fail to submit at least 90% of your taxes, you’ll incur severe penalties. Work with a professional to ensure you pay the correct amount.

  1. Be Mindful of Specific Taxes

The amount of taxes you must pay can come as a big surprise. Some examples include self-employment tax. It makes you pay the entire 15.3% FICA tax.

However, you can deduct 50% of the self-employment tax on your Form 1040. Take advantage of every possible operating business expense to make the most out of your deductions.

Pay Taxes for Small Businesses on Time

These are some facts to remember when paying taxes for small businesses. Never let the IRS penalize you for incorrect or late payments. Use these to ensure you’re always on top of your taxes.

Learning about your obligations is only the start. Work with a reputable tax lawyer to save more in the long run.

Is this guide informative? Check out our other posts today.

Written By