When you own a small business, putting an emphasis on your tax liabilities is very important. The IRS continues to target small businesses for audits—especially once they start making profits. That’s why it’s important to be very careful and accurate with your tax preparation and why you’ll want to take the proper steps to maximize your legal deductions at the same time.
Let’s take a look at five critical federal tax issues that will heavily affect your small business:
1. Your Legal Entity Matters
Not all small businesses are treated the same when it comes to tax burden. Whether you have a sole proprietorship, LLC, partnership, S corporation or C corporation, the tax liabilities will be different for each. Corporations tend to have more tax benefits, yet they require much more complicated returns. Ferguson, Timar & Company can help you when it comes to choosing the proper business entity.
2. Track Your Startup Expenses
Your business doesn’t have to be completely up and running before you can start deducting expenses. Keep accurate track of all the expenses that it took to get your business off the ground. This includes research, training, supplies, advertising and other expenses that are tax deductible. Make sure to hold onto all your receipts to stay organized come tax time.
3. Take Advantage of All Deductions
You are able to deduct more business expenses than you might think. You can minimize your tax burden as your business grows with smart tax preparation and detailed expense reports. You’ll want to understand everything you can deduct, keep accurate records and prepare your business tax return properly to get the most out of your available deductions. Some examples include employee salaries, mortgage interest, utilities, operational costs, office supplies, healthcare benefits and much more.
4. Make Quarterly Estimated Tax Payments
Generally, individuals who expect to owe less than $1,000 in taxes, after subtracting federal income tax, are exempt from making quarterly payments. Otherwise, both individuals and corporations are required to pay estimated tax payments throughout the year. If you’re unsure about what your estimated tax payments will look like, a tax professional like Ferguson, Timar & Company can help you avoid penalties and ensure that your tax return preparation goes smoothly.
5. Understanding Self-Employment Tax
All business owners are required to pay self-employment tax, which is comprised of Social Security and Medicare taxes. How it is paid depends on the entity type. For Sole proprietors self-employment tax is owed on the net profits. For partners in a partnership, the tax is owed on their share of the profits. For corporate shareholders, self-employment tax payments are not required on shared profits, but rather on their wages where half is deducted from the paycheck and the other half paid by the corporation. The employer-equivalent part can be deducted, though.
Preparing taxes for your small business can be a daunting task, especially when it’s new to you. Working with an experienced tax professional like Ferguson, Timar & Company will make all the difference. We’ll help you maximize your deductions, prepare accurate returns and cover all the details to ensure there are no concerns and that you get the most out of your small business tax situation. Contact us today for the best in small business tax representation. We’re here to help.