subject: Facts About Small Business Taxes [print this page] Declaring and paying taxes are two of the most important duties of a business owner. This should be done correctly and responsibly. While doing your obligations, you can also make use of your unique tax privileges as a small business entrepreneur.
In this article, let's discuss essential tips on how entrepreneurs can manage their business taxes effectively:
On Tax Deductibles.
Small business owners are given the privilege to "write off" or deduct all their business expenses to reduce their tax payables. For instance, costs of business equipment, employee salaries, office rent, and other direct business expenses are eligible for tax deductions. If you are going on an official business trip, all your travel-related expenses are considered to be business tax deductibles as well.
What other expenditures qualify for tax deduction? If you are running your small business from your home, make sure that you have a separate room or space in your house that is solely dedicated for business operations. For instance, expenditures spent to renovate your home-office and all equipment purchased and used in your home-office are eligible for tax deductions.
Employee Taxes.
If you hired regular workers, their Social Security contributions, federal and state income taxes, as well as health benefits should be withheld from their monthly salary. As the employer, you need to match your employee's Social Security and Medicare taxes and pay your share. The law also mandates all employers to pay federal and state unemployment taxes.
Quarterly Estimated Taxes.
Another important aspect in managing your small business taxes is keeping up with your estimated tax bills. For instance, businesses that exceed $500 in total tax fees must pay quarterly estimated taxes. Before the year ends, an entrepreneur must pay 90% of the total tax or 100% of last year's tax.
Sales Taxes.
If your business offers services, then some types of services can be exempted from paying the sales tax. However if your business involves selling of products (except food and drugs), then you must register with your local state's tax department. Both taxable and non-taxable sales must be monitored and included in filing your business's sales tax return.
File Your Tax Documents for at Least Seven Years.
See to it that you file all your business tax returns, licenses, purchase receipts, and other business-related invoices in a safe place as you may use these essential documents for your reference.
Charitable Contributions.
If you are managing a sole proprietorship, partnership, limited liability corporation, or an S corporation type of business, then you can deduct charitable contributions (charities recognized by the IRS) from your business taxes. The IRS has a website as well where you can check the list of accredited charitable organizations.
Tax Deadlines for Businesses.
The deadline for annual return is April 15 for unincorporated companies and S corporations; for estimated taxes April 15, June 15, September 15, and January 15; for sales taxes quarterly or monthly, depending on your State; and employee taxes are due weekly, monthly or quarterly depending on the number of employees.
Tax Audit.
Auditing is done by the IRS and there are different types of auditing, depending on the procedure. For example, the IRS may request you to submit a document of a specific item in your tax return to test your company's compliance. Or you may be asked to report to your local IRS office and document one or several items in your tax return.
You may also be requested to meet with a representative of the IRS who will review your records and ask questions based on the documents you submitted. Other types of Auditing are known as the Taxpayer Compliance Measurement Program Audit and the Criminal-Investigation Audit which are more complicated than the rest. For more information, visit the IRS website.
