As a small business owner, you already have a lot on your plate. Your priority may be sales, customer retention, and growth. However, paying attention to the financial and legal aspects of running a business can be a costly mistake. You may not enjoy doing taxes, but understanding small business taxes is critical if you want to avoid penalties, deductions, or audits. In this blog post, we will cover the basics of small business taxes, the types of taxes, tax deductions, and how to stay compliant.
What Is Small Business Tax?
Small business tax is a mandatory payment of a portion of profits or income to the government. The revenue you earn from your business counts as taxable income, and you have to calculate and pay taxes on it. Tax rates vary depending on the type of business structure, revenue, and state. Failing to file taxes or pay them on time can lead to penalties and consequences, such as losing your business license, bank account freezing, or a visit from the IRS.
Types Of small Business Taxes
Small businesses may have to pay different types of federal and state taxes. Federal taxes include income tax, self-employment tax, employment tax, and excise tax. State taxes vary depending on the state but may include state income tax, sales tax, property tax, and franchise tax. Your business structure also impacts your tax liabilities, as sole proprietors, partnerships, LLCs, and corporations have different tax obligations.
Tax Deductions
One way to reduce your small business tax bill is to take advantage of tax deductions. Tax deductions allow you to reduce your taxable income by deducting expenses related to your business. The expenses may include office supplies, software, travel, insurance, marketing, and utilities. Keeping accurate records of your expenses is essential to claim tax deductions. If you work from home, you may also qualify for the home office deduction. Consult with a tax professional to find out which deductions apply to your business.
Staying Compliant
Staying compliant with small business tax rules may feel daunting, but it is necessary to avoid legal and financial issues. To stay compliant, you need to register for an employer identification number (EIN), keep track of your revenue and expenses, file tax returns on time, make estimated tax payments, and be aware of tax updates and changes. You may also benefit from hiring a tax professional or using tax software to make tax filing more manageable.
Small business taxes can be complicated, but they are an essential part of running a successful enterprise. By understanding the basics of small business taxes, you can reduce your tax liability, prevent costly mistakes, and stay compliant with the law. Remember to keep accurate records, take advantage of tax deductions, and consult with a tax professional, if needed. Don’t let small business taxes intimidate you, embrace them as part of your entrepreneurial journey.
What is A Tax Resale Certificate?
You must understand that tax resale certificates can also be used on items that will be resold. Office supplies, such as new computers for your employees, would not fall under the category of retail. It would be considered fraud not to pay sales tax on these items.
If this needs to be clarified for you, just think of tax resale certificates as state tax exemption certificates. Some states call them exemption certificates or reseller’s permits.
How Do I Know If I Need To Pay Sales Tax In A Given State?
To establish whether or not a state can impose a sales tax upon your business, there first needs to be nexus. A connection between the state and your business finds Nexus relating to state sales tax. How this connection is defined has been subject to fairly recent changes that reflect changes in the way business is conducted in modern times.
Traditionally, the nexus has been established by the business having a physical presence in the state. However, due to the explosion of e-commerce, physical presence within a state is no longer a requirement for sales tax nexus. In the case of South Dakota v. Wayfair, the courts eliminated physical reality as the significant requirement for creating nexus. It should be noted that physical presence is considered an essential requirement to allow a state to collect sales tax and is still one of the first considerations for sales tax.
What Information Do I Need For The Tax Certificate Registration Form?
You must provide the following information:
- The name and address of the purchaser
- The name and address of the seller
- The registration number of the purchaser
- An accurate description of property purchased for resale
- The reason for the exemption
- A statement that if the property is put to use in a taxable manner the purchaser will remit the consumer use tax
- Date Signature and Title of the authorized individual at the purchaser
What Happens If I Do Most Of My Business In A State That I Am Not Incorporated?
If you primarily do business in a state that you are not incorporated in, make sure you apply for a Foreign Qualification (also known in some states as a Certificate of Registration or Certificate of Authority). This is the process of registering your company, which is considered domestic to the state in which it was initially formed and foreign to all other states, as a foreign entity in the conditions in which it operates. The retailer can then legally conduct business outside the state in which the company was initially formed and, therefore, should be able to
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.