With My New Business, What Do I Need to Know About Taxes?

//With My New Business, What Do I Need to Know About Taxes?

With My New Business, What Do I Need to Know About Taxes?

If you’ve just started a new business, you may wonder what you need to know about taxes. Here’s the information you need for income, sales, state, and payroll taxes.

Income Taxes

As a small business owner, you may be surprised to learn the IRS has recently, frequently targeted small businesses for audits, according to Quickbooks. While the government may not notice you before your business is profitable, be careful from the start to pay close attention to your tax responsibilities. This will help you prevent liability issues later on, as well as maximize deductions. Don’t forget these five important points:

  • You can deduct your startup expenses. Many such expenses are deductible even before your business is open to customers. Such deductible expenses include costs from analyzing products and researching markets. Other deductible expenses include training employees, advertising to reach potential clients, locating suppliers, and attending seminars and trade shows.
  • Don’t forget to make estimated payments on your taxes. Even though startups are exempt from making estimated payments during their first year, they must make estimated quarterly payments every year after that. A business owner that is a sole proprietor, as well as S-corporation shareholders and partners must make the payments if they expect to make more than $1,000 in a year. If you are filing for the first time, use last year’s deductions, tax credits, and income to estimate your taxes. Businesses that fail to pay at least 90% of their tax burden are subject to penalties.
  • You are responsible for paying self-employment taxes, which include Medicare and Social Security. As someone who is self-employed, you are responsible for your own share of the taxes, and as a business owner, the half an employer would normally pay, but you can deduct employer-equivalent component of the self-employment tax. This would amount to half of the tax, so if the burden was $20,000, you could deduct $10,000.
  • New business owners find they can often deduct more than they think. The IRS permits deductions that are ordinary, those common to your specific trade, and necessary, those that might be helpful but not always required in your specific trade. Business deductions typically include equipment, office supplies, such as copiers, fax machines, and computers, and furniture.
  • Structuring your business as the right entity can decrease your tax burden. Whether you are a limited liability company (LLC) or a corporation can affect whether only your business or shareholders pay taxes. For this and other important issues, it is important to consult a tax adviser.

Sales Tax

Sales tax is tax imposed by state and local governments on purchases. The purchaser pays it, and small business owners, must assess the amount to collect and pass it on to the appropriate authorities within the alloted time. Rates and laws vary from state to state, which often leads to confusion, especially if you sell to customers in more than one state. To understand when sales tax applies and how to pay it, read the Small Business Administration (SBA)information, Sales Tax 101 for Small Business Owners and Online Retailers.

State Taxes

According to the SBA, if your business is a LLC, it is structured with the combined pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation. You would pay taxes to the state just as you would IRS – through individual returns. There are some states that charge a LLC tax on income earned by that LLC, besides the members’ income tax. On the other hand, some states charge an annual LLC fee, which is not related to income. This is known as a registration fee, franchise tax, or renewal fee. It pays to know the law in your state before forming a LLC.

Payroll Taxes

If you have a business with employees, you must withhold taxes from their paychecks and the appropriate federal, state, and local taxes. You must also withhold FICA taxes for Social Security and Medicare, and income taxes, if you are in an area that requires local income taxes, which are for a municipality or a school district. In some states, including Hawaii, New York, New Jersey, Rhode Island, and California, you must withhold disability insurance taxes.

If the business does not have outside employees, but is incorporated, these rules apply to the owner’s paycheck. If the business has no employees and is not incorporated, it needs to pay estimated quarterly taxes on self-employment income.

To estimate taxes, you need to know who are your taxable workers, and they usually are considered such, rather than independent contractors who are responsible for their own taxes, if you can control the way they do their work.

You then need to determine taxable wages, which can include regular income, gifts, and bonuses, but often not reimbursement for meals or travel.

After doing these things, you can then calculate the taxes using IRS tax tables and information from your state and local areas, as well as the prescribed rates for FICA.

For more information, feel free to contact us.

By | 2016-12-30T09:28:23-07:00 December 30th, 2016|Blog|Comments Off on With My New Business, What Do I Need to Know About Taxes?

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