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Small Business Tax Advice For 2023

What is a business entity?

One or more natural persons create a business entity to carry on a trade or business. Business owners often favor corporations and LLCs because they offer several layers of protection for their owners.

The following are types of business entities:

  • Limited liability company: A registered business with limited liability for all members
  • Professional limited liability company: An LLC structure for professionals, such as doctors and accountants
  • C-corporation: An incorporated business composed of shareholders, directors, and officers
  • S-corporation: An incorporated business that is taxed as a pass-through entity
  • Professional Corporation: A corporate structure for professionals, such as doctors and accountants
  • B-corporation: A 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.

Small Business Should Never Underestimate Taxes

The Internal Revenue Service has been more active in targeting small businesses for tax audits in the last several years. New businesses have spent 2.5 billion each year preparing taxes and answering questions from the IRS about tax return inquiries.

However, there are things that any new business can do to lessen its tax burden. We will discuss how choosing the right business entity can make your life as a new entrepreneur much easier in the coming future.

Healthcare Savings

Medical costs are rising and can be quite expensive. It is smart to save money for unexpected healthcare expenses even if you are healthy now. This can be accomplished through a Health Savings Plan or HSA.

An HSA is a type of savings account that lets you set aside money on a pre-tax basis to pay for qualified medical expenses. By using untaxed dollars in a Health Savings Account (HSA) to pay for deductibles, copayments, coinsurance, and other expenses, you may be able to lower your overall healthcare costs. HSA funds generally may not be used to pay premiums. This will help greatly in lowering taxes associated with medical costs.

HSA helps you save in taxes by letting your contributions be pretax, grow tax-free, and allow any withdrawals to also be tax-free. They are an invaluable source of savings and peace of mind. 

It Is Never Too Early To Plan For Taxes

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; it is always early enough to start. No reason taxes need to be a mystery, and you can forecast what you will owe in the coming 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 to 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 over $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 of Social Security taxes and Medicare taxes since there is no 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 home for your business, profession, or job. These expenses cannot be extravagant or used for personal purposes.

The following are valid business expenses:

  • 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 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, the standard mileage rate, and 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 stenographer’s fees, computer rental fees, and operating and maintaining a house trailer.)

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
  • Insurance

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 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.

Getting A Tax Resale Certification Is One Of The Best Things You Can Do As An Entrepreneur

A tax resale certificate can save you money on taxes if you start a business.

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 used in products 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 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 run your business confidently. Make sure you check out our second blog in this series so you can learn even more valuable information about tax resale certificates.