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.
There Are Other Taxes Besides Income Taxes
Businesses pay more than just income taxes. They include the following:
- Employment taxes on wages paid to employees and the owner (you).
- Social Security
- Medicare tax
- Federal unemployment tax (FUTA)
Social Security tax is 12.4 percent of all wages paid up to $137,700, with half paid by the employee and half paid by the employer. Medicare is equal to 2.9 percent of wages paid (3.8% on wages aboveTo2020 was true $200,000 ($250,000 for joint returns, $125,000 for married taxpayers filing a separate return), half paid by the employee, and half paid by the employer. FUTA is generally equal to 6 percent of the first $7,000 of each employee’s wages and is paid by the employer. Self Employed owners will have to pay a total amount of Social Security taxes and Medicare taxes since there is not a separate employer to pay it for you.
Business Travel Expenses
The Internal Revenue Service defines a business expense as the ordinary and necessary expenses associated with traveling away from your home for your business, profession, or job. These expenses cannot be extravagant or used for personal purposes.
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.
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.
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.
Have you, the owner, been taking money out of the business to pay personal or professional expenses?
Do you know what to call the money you have taken out? Are you drawing a salary?
Small business accounting can be quite complex and confusing. The wrong guess to any of these tough questions can land you into a lot of trouble with the IRS. This is why having the proper small business consultant is crucial to protecting your business from unnecessary taxes and fines.
Home Office Expenses
Using part of your home for business allows you to deduct expenses for the business use of your home. This can be applied to all types of homes including business owners who rent.
If you use your home exclusively and regularly for conducting business you can deduct the following:
- Mortgage Interest
In order to qualify for the home office deduction, you must show that your home is used regularly and exclusively for conducting business and is the principal place of business.
There are two methods for calculating the house office deduction. In the standard method, you use Form 8829 to itemize the various expenses involved in using and maintaining your home office. This includes rent or mortgage interest payments, utilities, homeowners insurance premiums, and property taxes. In the simplified method, you determine the square footage of your home office (up to 300 square feet) and multiply by five dollars.
The simplified method is more straightforward but you should see which one gives you a larger deduction amount.
We should point out that office expenses are not the same as home office expenses. Office expenses should include things such as maintenance, cleaning, and repair. This is mostly if you use a dedicated office for your business and not a home office.
We have already mentioned being able to deduct mortgage payment interest. If you’ve got a mortgage on a property that’s primarily used for your business (that is, not your primary home), you’ll write off the interest thereon mortgage. You’ll need to get a Form 1098 from the lender to report the interest paid therein the year.
The second category includes all other sorts of interest. Examples are business credit cards, lines of credit, or interest on equipment loans.
It Is Never Too Early To Plan For Taxes
It is true that 2020 was a year that had a lot of personal challenges for small businesses. However, understanding your tax liability for the coming year is always a good idea and it is never too early to start. There is no reason that taxes need to be a mystery and you can forecast what you will owe in the coming year.
Tax Resale Certificate Is Here To Help
Not correctly understanding sales tax and the benefits of a tax resale certificate can lead to a great deal of trouble. 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 headache of registration to someone else.
On the other hand, misunderstanding and not paying the correct sales tax to a state government could very much 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. This way you can completely focus on the great opportunities presented by your Print on Demand business.