What You Need to Know About Small Business Taxes
Even if you employ an accountant to handle your small business taxes, you will run your company more successfully if you have an understanding of tax issues and can identify tax advantages and pitfalls. The following is a discussion of what you can do to make the tax system work to your advantage.
Decide What Type of Business Formation is Best
Each type of business – sole proprietorship, partnership, corporation, limited liability company – comes with its own income and consequences for small business taxes. Also, think about which business configuration will make it easier to pass along your business to your heirs, or which formation best suits your business operation and growth.
Choose Your Tax Year and Accounting Method
The end of your tax year is the cut-off point for many tax-saving strategies that can lower your small business taxes. Your accounting method must be reported to the IRS. Most small businesses use either the cash or accrual system of accounting.
Calculate Your Net Business Income
Calculate your gross profit by taking your gross business receipts or sales and subtracting your cost of goods sold. Then deduct your business expenses to give you your net business income. There are two important issues related to this number.
• Self-Employment Taxes – If you are a sole proprietor, you must pay self-employment taxes on your net business income. For a partnership, corporation, or LLC, different rules apply.
• Net Operating Losses – In “down” years your expenses will exceed your gross income, resulting in a loss. You can lower your small business taxes by deducting this loss in several ways.
Claim Every Allowable Deduction and Tax Credit
Every allowable legal deduction will reduce your small business taxes- start-up costs, compensation, home office, capital expenditures, equipment depreciation, travel (especially vehicle expenses), meals and entertainment, business gifts, casualty losses. Tax credits are subtracted directly from your tax bill.
Obtain Small Business Financing
Davis Commercial Finance provides financing solutions for all types and sizes of businesses. Whatever, your funding problem, contact us and we will help you solve it.