Become Proactive
Business taxes are determined by net income. If you use an online accounting system and enter all income and expenses, the system will automatically provide you with a gross profit figure. Please add up the numbers for those that use spreadsheets so you can forecast what you owe.
Starting Up
Even though starting a business is easier than ever, there are still costs associated with any new venture. You could deduct up to $5,000 of all the expenses related to starting a new business if your business was started this tax year. This can include things like market research and advertising for your business launch.
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 Social Security and Medicare taxes, so a self-employed individual must pay the total amount.
Solution
Small businesses should take advantage of the many business deductions available to small businesses to counteract this tax burden.
These include:
- Travel between your home and your business destination by airplane, train, bus, or car. (If you’re provided with a ticket or riding free as a result of a frequent traveler or similar program, your cost is zero.)
- Fares for taxis or other types of transportation between the airport or train station and your hotel, the hotel, and the work location, and from one customer to another, or from one place of business to another.
- Shipping of baggage and sample or display material between your regular and temporary work locations.
- You are using your car while at your business destination. You can deduct actual expenses, the standard mileage rate, and business-related tolls and parking fees. If you rent a car, you can remove only the business-use portion for the costs.
- Meals and lodging.
- Dry cleaning and laundry.
- Business calls while on your business trip. (This includes business communications by fax machine or other communication devices.)
- Tips you pay for services related to any of these expenses.
- Other similar ordinary and necessary expenses related to your business travel. (These expenses might include transportation to and from a business meal, public
Just make sure that you follow guidelines and do not over-deduct.
Insurance
A self-employed person can deduct the premium of various types of business insurance. This can include:
- Fire
- Theft
- Worker’s Compensation
- General Liability
Vehicle Expenses
So, if a self-employed person uses their vehicle for 100 percent business use and the vehicle is in the company’s name, then the car or truck is fully deductible.
If the vehicle is in your name and used partly for personal or partly for business use, then there are two ways to calculate the deductions.
Track your actual car expenses, including gas, maintenance, insurance, and depreciation, and deduct a percentage supported by the number of business miles you drive.
Deduct a typical rate on each “business” mile driven for the year. For 2020, the quality mileage rate is 57.5 center per mile caused for business use, down from 58 cents per mile in 2019.
No matter which method you select, you must keep track of the percentage of business and private miles you drive. You can use a manual log or an online app.
Net Profit
Do you correctly understand how to handle your cash flow? Are you going to pay taxes purely based on
What is available in your checking account? Unfortunately, many business owners do not realize that their available cash is not the same as the company’s net profit.
Remember The Quarterlies
Since self-employed owners do not get taxes withheld from their paycheck, it is a good idea 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.
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 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. According to the IRS, the conclusion is available to eligible taxpayers whose taxable income is below $315,000 for joint returns and $157,500 for individual filers. However, some pass-through businesses may not qualify: The IRS regulations detail limitations.
If your business is a pass-through entity, the taxable business income must be reported with your tax return. This means the amount you owe will be determined by your tax bracket. For 2020, personal tax brackets range from 10 percent (for individuals earning up to $9,875 and joint filers earning up to $19,750) to 37 percent for individuals earning more than $518,400 and joint filers earning more than $622,050.
Getting A Tax Resale Certification Is One Of The Best Things You Can Do As An Entrepreneur
If you decide to start a business, a tax resale certificate can save you money on taxes.
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.
That is why TaxResaleCertificate should do all the hard work for you. We can ensure you get all the advantages of a tax resale certificate without dealing with the hassle of government red tape. Let us handle the hard stuff so you can proceed to run your business with confidence. Check out our second blog in this series to learn more about tax resale certificates.