As a startup business, you may have the impression that the IRS is not concerned with your business tax liability. However, this assumption could not be further from the truth as small business tax rule number one is to never assume you’re under the IRS’s radar.
Below are three major tax planning facts to consider during the initial setup and management of your business.
- The Legal Entity Structure Could Affect Overall Tax Treatment – If you thought that all small businesses are in the same tax bracket, think again. The legal entity that you choose to form can have an effect on your overall tax liability in the years to come. Each type of business structure has a set of benefits and limitations. For example, an S corporation allows small business owners to pay taxes at a shareholder level instead of being subjected to the higher corporate taxes. However, such a firm will need to feature a single stock class and be limited to having only a hundred shareholders.
- You Can Take More Deductions Than You Think – As a small business owner you’re aware that employee salaries, utilities, building rent, and other startup and operating costs for your business can become overwhelming. Fortunately, you can deduct certain business expenses as a way to minimize any tax burden and maximize bottom-line profits. Common business deductions include supplies, office equipment (i.e. fax machines and copiers), furniture, and rent on a home or business office. You can also deduct costs associated with the provision of employee health care.
- You are Responsible for Paying Self-Employment Tax – If you have never owned a business before, then it’s likely that you have not become accustomed to or have a lot of knowledge on paying self-employment taxes. Self-employment taxes are comprised of Medicare taxes and Social Security and are paid by individuals whose earnings are not subjected to employer withholding. As a self-employed individual you may have to file estimated taxes quarterly. Also keep in mind that you’re in charge of not only your own self-employment taxes, but also the other half that is typically paid by the employer. Being a small business owner has many rewards and as many of us know, it has its fair share of challenges — with taxation usually being at the top of the challenge list. Remember however that with persistence work, efficient preparation and effective tax planning strategies, your vision, passion and hard work ultimately rewards you with a viable and sustainable business.
Angelia White is the founder/principal accountant & tax advisor for AcctPier Business Solutions LLC. For more tips and information visit: Website: www.acctpier.com Facebook: www.facebook.com/acctpier Twitter: www.twitter.com/AcctPier