Things You Need to Know about Taxes as a Business Owner
Are you a business owner who is looking for help understanding taxes? With so much information out there, it can be hard to know where to start…
Even though taxes may seem like the last thing you want to think about when it comes to your business, knowing the basics of taxes and how to be compliant can help you save money, avoid audits, and make sure you’re paying your fair share.
Unfortunately, many business owners are unaware of the importance of taxes and how to pay them properly. This can lead to costly mistakes and even audits.
That’s why I recently spoke with my friend Deepa Ramachandran from https://www.acumencpa.com, a Certified Public Accountant (CPA), to get her advice on taxes for business owners.
Here is what you need to know about taxes as a business owner:
Choose the right business structure
The first step to paying taxes responsibly is to understand the different types of entities.
There are two types of entities: LLCs and corporations. LLCs are more flexible and don't require a special tax return.They are also the most popular choice for small businesses because they are flexible and easy to set up. However, corporations have more tax advantages and may be a better choice for businesses that want to take advantage of the lower tax rates.
Once the entity is chosen, it is important to understand the tax implications. This includes understanding the different tax rates, deductions, and credits available. Additionally, it is important to understand the different types of taxes, such as income tax, self-employment tax, and payroll taxes. By understanding the different taxes, business owners can make sure they are paying the correct amount.
When it comes to choosing a business structure, it’s important to consult with a professional. An accountant or attorney can help you determine the best structure for your business based on your individual situation. They can also help you understand the tax implications of each structure, so you can make an informed decision.
Know what taxes apply to your business
After your business entity is chosen, it is important to understand the various taxes that apply to each one. For example, a sole proprietorship is a business owned by one person, and the taxes associated with it are different from those associated with a corporation. Additionally, there are different taxes for income, payroll, sales, and other taxes. It is important to understand which taxes apply to your business and to pay them accurately and on time.
Ensure your business is ready for tax season
One thing you can be doing all year round to make sure you’re ready for tax time is to keep accurate records of all transactions. This helps make the process easy when it comes time to report your earnings and deductions. If you haven’t done your bookkeeping, now is the time to get caught up! This will not only help you file your taxes accurately, but also gives you an overview of your spending and possibly plan for the year ahead.
Stay up to date on laws and regulations
It is also important to stay up to date on tax laws and regulations. Tax laws and regulations are constantly changing, and it is important to make sure that you are compliant with the latest laws and regulations. This is especially true if you are running a business in a different state or country.
Know the criteria for deductions
When filing a tax return, it is important to make sure that it is accurate. Taking the time to understand the criteria for deductions and seeking advice from a professional can help you ensure that you are taking advantage of all the deductions you are eligible for. It is also important to make sure that you are following the criteria and that the deductions are legitimate. Doing so can help you avoid costly mistakes and penalties.
For example, one of the most common deductions is the home office deduction. This deduction is available to those who own their own business and use a portion of their home exclusively for business purposes. Unfortunately, the 2018 tax law eliminated the ability for those who are employed by someone else to take a home office deduction.
In order to qualify for the deduction, you must own a business and use a dedicated space exclusively for business purposes. This means that if you are using a part of your family room, you will not be able to take advantage of the deduction. It is also important to note that the IRS has started more home office audits, so it is important to make sure that you are meeting all the criteria.
Overall, it is important to understand the criteria for deductions and to seek professional advice if you are unsure.
Beware of false deductions
Unfortunately, there are people out there who try to take advantage of the system by claiming false deductions. This is a dangerous practice that can lead to serious financial and legal consequences. It is important to be aware of the common myths about deductions and to understand what is and isn't allowed.
One of the most common myths is that you can buy a car and write it off. This is not true. In order to write off a car, you must be using it for business purposes at least 50% of the time. Commuting miles do not count as business miles and therefore cannot be deducted.
Another common myth is that you can take a home office deduction. In order to be eligible for this deduction, the space must be used exclusively for business purposes. If the space is used for both business and personal activities, it is not eligible for a deduction.
It is important to be aware of these myths and to understand the rules and regulations surrounding deductions. If you are unsure, it is best to seek professional advice.Taking the time to understand the rules and regulations surrounding deductions can help you ensure that you are paying the correct amount of taxes and avoiding costly mistakes.
Seek professional advice
As you may have gathered, tax laws can be complicated, and it is important to make sure that you are taking the right approach for your business. A professional accountant or tax attorney can provide invaluable advice on how to pay taxes responsibly. They can also help you understand the tax implications of different business decisions, such as setting up an LLC or corporation.
Looking for a tax professional? Learn more about how Deepa Ramachandran and her team can help you with your taxes on their website Acumen Accounting & Tax.
Do you need to get your bookkeeping ready for taxes? Learn more about our bookkeeping services here!
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