Common Small Business Tax Issues

There is no greater joy than owning and operating your own business. You look over your record-keeping and have a sense of well-deserved pride in your accomplishments of the past year. Then you remember tax season is looming over you like a dark shadow and a knot of worry forms in the pit of your stomach.

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 full amount.


To counteract this tax burden, small businesses should take advantage of the many business deductions available to small businesses.

These include:

  • Travel by airplane, train, bus, or car between your home and your business destination. (If you’re provided with a ticket or you’re 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.
  • Using your car while at your business destination. You can deduct actual expenses or the standard mileage rate, as well as business-related tolls and parking fees. If you rent a car, you can deduct only the business-use portion for the expenses.
  • 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.

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 you’ve entered 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.

Net Profit

Do you properly understand how to handle your cash flow? Are you going to pay taxes purely based on

What is available in your checking account? 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 sent 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 tax liability of the business actually 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 then 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, according to the IRS. Some types of pass-through businesses may not qualify for this deduction: The IRS regulations detail the limitations.

If your business is a pass-through entity, then 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.

If Your Business Is A C-Corporation

A business that is not a pass-through entity is a C-corporation. These are usually larger companies that do not qualify as small businesses.  However, if your business is a c-corporations it will now be taxed at a flat rate of 21 percent. Remember that c-corporations are always taxed twice. That is because the c-corporation itself is looked upon as a separate entity. These entities are taxed at the business level and the shareholder level.

Business Organization

Are you sure that you have chosen the proper business organization? The type of organization has a strong bearing on your tax structure and you should make sure your organization utilizes the best tax structure for your business needs. Having a small business tax professional look over the Consumer Price Index is a good way to understand your business should be properly structured.

Independent Contractors

Are you confident that your independent contractors have not become employees during the tax year? Did you provide them with the right forms? Businesses need to understand how to properly document all those who have done work for them and the Internal Revenue Service or IRS regulations on such matters can be very perplexing.

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 tax retail certificate allows you not to pay sales tax on items that you plan to resell. This can also apply to supplies that are going to be used in products that you will resell, such as wood for a cabinet.

However, the process can be difficult and the rules are different for each state. That is why TaxResaleCertificate should do all the hard work for you. We can make sure that you get all the advantages of a tax resale certificate without having to deal with the hassle of government red tape. Let us handle the hard stuff so you can proceed to run your business with confidence. Make sure you check out our second blog in this series so you can learn even more valuable information about tax resale certificates.