Make Sure You Have The Proper Forms
You should first make sure you have the proper forms for your small business entity.
What is a business entity?
A business entity is a corporation created by one or more natural persons to hold on to a trade or business.
The following are types of business entities:
- Sole proprietorship: Unincorporated business with one owner or jointly owned by a marriage
- General partnership: Unincorporated business with two or more owners
- Limited partnership: Registered business composed of active, general partners and passive, limited partners
- Limited liability company: Registered business with limited liability for all members
- Professional limited liability company: LLC structure for professionals, like doctors and accountants
- C-corporation: Incorporated business composed of shareholders, directors, and officers
- S-corporation: An Incorporated business that is taxed as a pass-through entity
- Professional corporation: Corporate structure for professionals, such as doctors and accountants
- B-corporation: For-profit corporation that is certified for meeting social and environmental standards
- Nonprofit: Corporations: Formed primarily to benefit the public interest rather than earn a profit.
You will use different forms, but calculating the taxes itself will be similar.
Make Sure Your Documents Are In Order
Do an inventory of all your business records. It is critical to have the correct documents to accurately report your earnings and expenses. Computer software like Excel or Quicken greatly helps in organizing your tax records. These programs can also save you time by importing information directly into your tax return.
Is Your Business a Pass-Through Entity?
A pass-through entity is when the business’s tax liability passes through to the owner.
Pass-through entities include:
- Sole Proprietorships
- Limited Liability Companies
- S Corporations
A business that has not filed any paperwork is automatically considered a sole proprietorship by the Internal Revenue Service.
If you are a pass-through entity, you could owe less in taxes. The Tax Cuts and Jobs Act allows a 20 percent tax deduction on qualified business income from pass-through businesses. Generally, the deduction is available to eligible taxpayers whose taxable income is below $315,000 for joint returns and $157,500 for individual filers. Some types of pass-through businesses may not qualify for this deduction: The IRS regulations detail the limitations.
The Self Employment Tax
A self-employed person has to file additional taxes besides their income tax. This usually amounts to an extra 15.3% burden for small business owners. This is because employers and employees each pay 7.65% for both Social Security and Medicare taxes, so a self-employed individual will have to pay the total amount.
Remember The Quarterlies
Since self-employed owners do not get taxes withheld from their paycheck, it is good to withhold the correct amount and send the Internal Revenue Service quarterly payments. This is particularly important if your tax liability is over $1.000. Ignoring quarterly payments could result in costly interest payments or penalties.
Become Proactive
Business taxes are determined by net income. This is when you subtract business expenses from gross revenues. Having an online accounting system automatically keeps track of your figures. If you use an online accounting system and enter all income and expenses, the system will automatically provide you with a gross profit figure. Those that use spreadsheets, please take the time to add up the numbers so you can forecast what you will need to owe in taxes for the following year.
Advertising
Self-Employed people should keep in mind that all advertising costs are fully tax-deductible.
This can include the following.
- The cost of printing business cards, flyers, and mailers
- Social media advertising like Facebook ads
- Promotions at conventions and trade shows
- The cost of advertising agencies
- Television and radio advertising
- Employing freelancers
You can also deduct all commissions paid to non-employees for sales and marketing purposes. This can include payments to individual sales reps or marketing channels and a platform like Amazon.
Hiring A Family Member
Employing a family member allows you to shelter income from taxes. Small business owners can even hire their children. You can pay a lower marginal tax rate or even go as far as eliminating the tax on income paid to one’s child.
A sole proprietorship does not need to pay the Federal Unemployment Tax or FUTA tax for a child or spouse. This tax is defined as legislation that imposes a payroll tax on any business with employees. The revenue it generates is allocated to state unemployment insurance agencies and used to fund unemployment benefits for people out of work. This can lead to significant savings. Also, depending on the circumstances of the job, you might even be able to put aside some retirement savings for them.
Get A Tax Resale Certificate
As a savvy small business retailer, you must be aware of utilizing tax resale certificates to your best advantage. In short, a retail tax certificate allows you not to pay sales tax on items that you plan to resell. This can also apply to supplies that will be used in products that you will resell, such as wood for a cabinet.
You must understand that tax resale certificates can also be used on items resold. For example, office supplies, such as new computers for your employees, would not fall under retail. Therefore, it would be considered fraud not to pay sales tax on these items.
If this is confusing, just think of tax resale certificates as state tax exemption certificates. Some states call them exemption certificates or reseller’s permits.
That Is Why We Are Here To Help
Understandably, all this information can be very daunting. Not correctly understanding sales tax and the benefits of a tax resale certificate can lead to a great deal of trouble. For example, a retailer could lose out on extremely beneficial sales tax exemption status. A savvy business owner will understand that having a tax resale certificate will save them a good deal of money but leave the actual registration headache to someone else.
On the other hand, misunderstanding and not paying the correct sales tax to a state government could hurt a business’s standing and reputation. At Tax Resale Certificate, we make the process as easy as possible. Just take advantage of our user-friendly interface to help take the headache of applying for a tax resale certificate off your plate.