Income Tax Advice For Small Businesses

Make Sure You Have The Proper Forms

The first thing you should do is 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 types of 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 key to have the right documents to accurately report your earnings and expenses. Computer software like Excel or Quicken greatly help 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 tax liability of the business 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.

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.

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.

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.

What Are Some Things That A Business Should Be Monitoring/Be On The Lookout For To Avoid Any Tax-Related Surprises?

Tax saving opportunities are available from January 1st to December 31st and are just not limited to the tax season. You must have someone who can advise you in real-time to make the proper decisions through each crucial step of building your business.

Someone who waits till tax season to seek advice will realize that most of the stronger options are no longer available to them. Every business transaction made by the business owner will have a powerful impact on their tax liability. A solid tax professional will help guide your business through every crucial moment, allowing for more financial security and stability. They will make sure that you are not sidelined with incorrect information that will lead to bad business tax decisions.

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.