Keeping the lights on for a small business is already a daunting task; keeping up with your tax obligations is an equally demanding task that will eat up time that could have better spent on profitable activities. Unfortunately, being a small business does not insulate you from filing your income tax return and the many discomforts associated with it. Fortunately for you, however, we’ve came up with this handy list that will make the whole affair more tolerable.
Your business’s structure
The type of business that you run and its impact on your obligations will become more apparent come tax season. Operating a small business in your own name or as part of a partnership has different consequences compared to forming a limited liability corporation (LLC). A sole proprietorship and a partnership have something in common in that you (and your partners) are responsible for the financial obligations of the business, including of course taxes.
A corporation, on the other hand, is recognized as its own entity. Going this route separates and insulates you from your business to a degree. A corporation is taxed separately, shielding you from personal liability. Lately, LLCs are gaining popularity, because owners can take advantage of some benefits from corporations and partnerships. For instance, profit can be passed through to owners without taxing the business, while shielding them from personal liabilities.
Some expenditures can be written off, helping small business owners with the cost of running their operation. In 2018, the IRS released data on the deductions that can be claimed by sole proprietorships, as well as other entities like LLCs and partnerships.
Some of the most common tax deductions that small businesses can utilize are deductions for car and truck expenses, salaries and wages, cost of freelancers and independent contractors, cost of certain items used in business, depreciation costs, rent, utility costs, cost of licenses and regulatory fees, insurance costs, and travel costs, among others. The goal is to identify the deductions that applies to your operation.
Payroll is not only an issue of handing out cash to your employees. It encompasses a number of different responsibilities, such as withholding a portion of their pay for Federal and state income tax, Social Security tax, Medicare, and other local tax obligations. As an employer, you are responsible for paying your employee’s share of payroll taxes, depositing tax dollars, preparing reconciliation reports, financial reporting, and filing tax returns. In some cases, however, you may also be able to claim deductions for the cost of paying employees as business expenses.
If you’re a small business owner, you should already be familiar with tax preparers. If this is your first time hearing about them, you’d be glad to know that there are professionals you can employ to help you make sense of the US tax code, identify tax deductions, and prepare your tax returns for you for a reasonable, often low, fee. The IRS has licensed enrolled agents who are recognized nationally, and if you’re business’s tax situation is more complex than most, you could also opt for CPAs and tax attorneys.
If you’ve no time to look for a tax preparer, our small business tax experts can help guide you in the right direction. Contact us today at 818-452-2641 or fill out our contact form to schedule a free consultation.