When running a business, it’s imperative the books you have are in tip-top shape. Therefore, it’s important you know the basics of taxes at the very beginning to avoid any tax issues later on.
3 Basic Tips To Dealing With Business Taxes
1.Hire A Bookkeeper and Tax Professional
You really want someone on your payroll who knows about taxes, and that kind of someone better be a professional. A tax professional can get your book in order and provide you with advice on tax-related information. Keep in mind that you don’t just pay income taxes, you also pay 15.3 percent for a self-employment tax, which will fund the Medicare and Social Security accounts.
All of this can become very expensive in no time. However, a tax professional will reduce how much you’re hit by and ensure the bookkeeper takes advantage of all entitled deductions.
When you hire a bookkeeper, don’t just base it on the books. You want a person who understands your service and/or product as well as how to do the books and financial statements, something a business owner should have some knowledge about it too. Be sure you give a bookkeeping test to figure out if a candidate actually has the qualifications you are looking for.
2.Pick An Authorized Entity
Your tax professional and attorney can assist you in choosing the perfect legal entity. Most folks should go with a sole proprietorship, which is great for a one-person business. It’s also the simplest techniques for income tax reporting and not very expensive to begin with. Of course, after your business starts to succeed, you should consider incorporating the business or becoming an LLC.
Always check with your tax professional or attorney before you make any kind of decision. Each person’s situation differs so there is no-one-advice-fits-all scenario. There are always going to be ramifications that you need to consider. Plus, it’s best to find a good insurance policy that will protect you. Other factors can also play into this situation.
3.Pay Your Estimated Tax Payments
Here’s a surprise regarding your taxes: you don’t get a paycheck, so personal needs are met through your business account. You must open a different business check account because you don’t want to mix your personal with your business funds. Since no taxes are taken from these monies, you must make your estimated tax payments from the earned profit, which are due:
- April 15
- June 15
- September 15
- January 15
Talk with your tax professional to see what amount you need to be paying. The general rule is pay 90 percent of the previous year’s tax liability. If you earned over $150,000, you need to pay about 110 percent. Of course, you could pay 100 percent of the present-year liability, which is nice if you’re not having a good year.
3 Additional Tips To Keep Out Of IRS Trouble
1.If money from your personal funds or loans is deposited into the business account, it’s not considered taxable income. Rather, it’s known as a capital contribution and is reflected on the business balance sheet under the equity accounts. If it’s a loan, it’s noted as a liability on the balance sheet.
2.A home office deduction is no longer considered a red flag, so take it if you must. However, only a part of your home is for the business, so you need to take that into consideration. Talk with your tax professional to be sure how to do this correctly.
3.The taxable profit is the variance between generated sales and everyday business expenses deducted from the sales. The tax liability, however, isn’t based on the number of draws taken from the business.
