Death and taxes are said to be the only certainties in life. This is true for individuals, and it is especially true for businesses. However, if you are an online entrepreneur or are just setting up a company in the US, there are some things that you can do which can help you to offset some of the burden. Although the only things certain in life are death and taxes, the amount of tax you pay can be reduced if you follow a few simple steps.
Understand How To File Your Taxes
Whatever your business size might be, you are responsible for filing quarterly and annual tax returns for federal income tax, as well as paying federal income taxes on the money in your bank account. While this differs slightly from individual tax filing, much of the process will be similar.
Make sure you have all relevant records:
Prepare your tax form for reporting your business income by gathering all relevant documents. Ensure you have your business records readily available that show your revenue and expenses.
You need to find the correct form:
Your business earnings must be reported to the IRS and taxed, but the form you use to report earnings depends on how you run your business. Therefore you must choose the correct document, so you don’t waste time. Generally, April 15 is the deadline for submissions.
Fill out the form:
You can find a copy of Schedule C on the IRS website if you report business earnings on it. Due to its short length and list of all expenses, you can deduct, Schedule C makes preparing business taxes easy.
Observe deadlines:
ASchedule C as part of Form 1040 makes it unnecessary to submit it separately.
Hire An Accountant
Accounting for a small business is critical, and having the help of a good accountant can make a difference in your industry. If you are a content creator, you understand the need to deliver your content by a particular deadline. Therefore, an accountant can take away this burden and keep you thinking about how to increase business.
When you own a business, it is easy to fall into the trap of mixing your business and personal expenses. Since you do not take a salary, you will usually have more money in your business account. The two accounts should, however, always remain separate. This will make tax preparations far easier and dramatically reduce the chances of causing a mistake. These mistakes can sometimes even cause the IRS to initiate an audit on your business, which you don’t want. To avoid this, make sure you pay your taxes on time each quarter.
Document Everything
A poor record of your finances can sometimes cause you problems, especially when you get a tax audit on your business. Documenting every receipt and invoice in some form or fashion, whether manually or electronically, is vital. In addition, as with any other document of this nature, you need to make sure that a backup is kept. As a result, even if some data becomes corrupt, you will always have a backup to fall back on if things do not go smoothly. The IRS doesn’t take any excuses and will thoroughly investigate everything whether or not you have declared it. Any discrepancies will be looked at, and if you don’t have the relevant documentation, you could be in trouble. Nonetheless, it is far more straightforward these days to keep a clear record of receipts and bills. You can often use apps on your phone to digitize paper documentation, and of course, all emails are usually stored with your email provider.
Make Sure You’re Prepared For Anything
Law-abiding citizens who pay their taxes on time should not have to deal with further tax hassles. Occasionally, however, you get hit with another tax or forget to file something, which can feel like a punch in the stomach if you are not prepared. Mentally preparing for an ‘extra’ tax is key to dealing with it. Business owners often seek the advice of tax specialists who are experienced in tax issues, such as those at www.taxsharkinc.com. These professionals usually assist in alleviating tax shocks that businesses encounter. Filing business tax can be a confusing procedure, and genuine mistakes happen all the time. The thing to do about it is to ensure that you don’t miss any quarterly tax payments. Even so, these things do happen occasionally, and you have the option of retaining a tax expert to assist you.
Don’t Forget About Payroll Taxes
A payroll tax can be thought of as a tax on wages. For those working online, you might have employees in the form of freelancing individuals, so you won’t have to worry. However, if you do have staff on your books, then you will need to declare this.
You Can Claim Depreciation
Equipment can depreciate over time, which means that you can lose out when selling it on. However, a Section 179 Deduction, or Special Depreciation Allowance, is available regardless of whether your business purchased used or new equipment. In general, service-based businesses like those of online-only businesses that rely on large machinery or computers are eligible for taking this deduction. A claim of up to $500k is possible, which can be a significant saving if your business relies on computers to run the business. This can be especially useful if you are running a multimedia type online business where the cost of equipment can depreciate rapidly.
Keep Your Tax Documents For At Least Seven Years
Maintaining an accurate expense record requires you to hold onto these records for at least seven years. You can use digitization services to store all of this data online, but it is also wise to keep the physical copies wherever possible. It might be necessary to dedicate a portion of your office or rent out extra storage space for this, but you will never know when you will have to prove something, and storing the necessary documents will be helpful.
Don’t Forget Quarterly Tax Obligations
Taxes are due every quarter by businesses, including self-employed sole proprietors. For business owners in their first year, this typically doesn’t have to get paid. Automatically set aside a percentage of your payments or revenue to ensure that your quarterly tax obligations don’t slip your mind. Prepare a profit/loss statement for each quarter, and then pay your quarterly bill.
Tax Reliefs
Although the IRS can be uncaring and impersonal, it does offer many incentives to entrepreneurs. These tax reliefs are slightly different from a deductible because they are designed as an exemption from certain taxes rather than deducting an amount from the final bill.
Extraction of Profits
Income tax on profits is usually taken from salaried individuals. Therefore, you should carefully consider how you will take out the profits your company has made. It is common for companies to release cash in dividends that are taxed differently from regular income. Therefore, you can save a considerable amount by merely thinking creatively about how you free your profits from the business. Regardless of what you decide, you must ensure that it is completely legal and you are taking action to reduce your tax liability rather than avoiding it.
Contributions To Pensions
Employees and directors of companies can both benefit from pension contributions. Corporations that contribute to employee pensions benefit from corporation tax relief, and employees do not incur income tax or national insurance until certain limits are reached. You can claim tax and federal insurance deductions for contributions to a personal pension scheme, subject to limitations.
Deductibles
The IRS has several tax-deductible benefits for businesses to consider. Not only does your business benefit from deductible expenses, but if your business incurs any losses, the losses may be deductible from your income. That way, your business can be more likely to be in the black in future years.
What Is A Tax Deductible?
A tax-deductible, also known as a deductible expense, is a business expense that you can write off from your profits. Those expenses are usually related to the equipment, services, or supplies you use while running your business. More importantly, you have to be able to prove to the IRS that the expenses are tax-deductible. Check out the IRS Publication 463, Business Expenses, to learn more about what you can and cannot deduct from your taxes. In addition, businesses often have employees and suppliers who work on a tax-deductible basis, meaning they can write off these expenses on their taxes. There are several different kinds of tax-deductible business expenses, including advertising, paying bonuses to employees, and buying furniture and computers for your business.
Fair Warning
Spending for the sake of a deduction isn’t wise. If you are spending frivolously to get certain write-offs, you could find yourself in trouble. Nevertheless, there are so many things that you can use to deduct from your tax liability that you won’t need to make up specific spending amounts. So, as an entrepreneur, what can you spend that qualifies for a tax deduction?
Advertising
Many companies rely on advertising to promote their brands. In turn, they spend money advertising products and services on television, radio, print, and online. You can deduct most of that advertising spend under Section 162 (for business expenses) of the tax code. The IRS does allow some advertising costs to be written off, but doing so requires careful planning.
Home Offices And Utilities Are Deductible
You can claim $5 per square foot up to 300 square feet in your house if you work from home. If you rent a coworking space or buy a place of employment, it is also deductible if you do not work at home. To simplify the calculation of your business use, the IRS even built a simplified form. Additionally, you can deduct the total cost of electricity used at your facility. Internet, cell phone, and landline costs are also considered utilities. Paying for the removal of trash can also be deducted. It all requires some creative thinking, and a good accountant can save you some serious money in the long run by keeping it all legal.
Supplies For The Office
When you run your own online business, you might not think you will use many office supplies; however, it can quickly mount up. As long as you use the office supplies purchased in the given year for business purposes, including printers, stationary, pens, computers, and software, you can deduct them. Postage and shipping costs related to your business can also be deducted, which will help those in the eCommerce sector and regularly send products to customers.
Expenses For Travel
Have you traveled for business? You may be able to deduct these travel-related expenses if you met with investors, clients or attended industry events. Flying, staying in a hotel, renting a car, and even dry cleaning are examples of such services. This might not be beneficial to all small to medium-sized businesses, but you should look into it even if you don’t travel much.
Startup Costs
A business’s setup costs are the costs you incur to set up the company and are the expenses you have before the company launches. If you include these expenses in your list of deductibles, you can save a significant amount of money as a newly formed company. These could include:
- Fees for legal and accounting services.
- Fees for permits and licenses.
- Costs associated with research and development.
- Induction of new employees.
- Inventory.
- Long-term assets, such as a computer, office equipment, and other supplies.
- Expenses related to the formation of an LLC, partnership, or corporation.
Donations To Charities
Small business owners can deduct charitable contributions they have made. However, the maximum allowed deduction cannot be more than 50% of your adjusted gross income. As such, you should discuss your options with your accountant.
Health Insurance
You may deduct qualifying health care premiums if you have fewer than 25 full-time employees or are a self-employed individual. You can also make deductions for insurance premiums. As this is something you would most likely do anyway, it’s a great way to save on taxes.
Maintaining current knowledge of all the latest updates to the tax system regarding business tax obligations is essential. That way, you can be one step ahead of any changes that may affect your business tax obligations in the future. This is vital for individuals but especially true if you are the owner of a business.