Running a business is far from simple. This is especially true when the tax season settles in. Taxes are a large part of having your business function properly, so you avoid any legal disputes. Since it is so crucial for the survival of any business, here are some of the most important things you need to know about taxes.
How is any business taxed?
For many businesses out, there isn’t a tax on the corporate level. Instead of this, the profits from the business itself pass through to the business owner’s personal returns. Because of this, these profits are taxed at the personal level of the individual. It is worth noting that if you are organized as a C Corporation then you would need to pay taxes on the profits of the business at the level of the company and not on the personal level.
The basic concept is that if you have a pass-through entity, the expenses and the income that come from the business will be reported on the business tax return. The profits from these businesses will then be reported on your personal return, where the taxes will be ultimately paid. Pass-through entities are the following: Partnerships, Single Member LLC, Sole Proprietors as well as S corporations.
Tax deductions are crucial
Some businesses have to stretch their financial resources as much as possible. This is especially true for new small businesses, moreover so if you are self-employed. Small businesses can have big expenses. These include various business expenses such as wages, traveling for business, even simple things such as supplies and minimal equipment, not to mention business property, insurance, etc. All of this can add up quickly, so you should pay special attention to tax deductibles.
Fortunately for small businesses and self-employed parties, there are many ways to minimize business taxes. One of the most straightforward ways is to look for every tax deductible business expense. Nobody enjoys tax season, but luckily if you are self-employed, there are specific rules and deductions that apply to you specifically per ITA (Income Tax Act). In addition to this, there are now modern solutions that can offer you free quotes that can help you compare and save up as much as possible.
One of the lesser-known things about taxes as a business owner is that there are benefits that come with making informed decisions and being a spender and saver. More specifically, there are some benefits that come with spending a lot of money on your business. There are many write-offs that you can pay for in full or in part that are tax-deductible. This is especially handy if your business is making a hefty sum of money and you want to avoid paying as much in taxes as you can.
When you pay for some luxuries through your business, you can avoid taking larger paychecks to your personal account. This paves the way to you paying taxes on these paychecks. Even though this sounds very good in theory, it can come at a certain price. If you are not saving money, be it in your business or personal account, and on top of that, you are not investing in producing income, the road to liabilities can quickly become a highway. Be sure to consider this option carefully.
Choose a tax year
Another thing you need to know about taxes as a business owner is to choose your tax year properly. More often than not, business owners choose their tax year to be the same as the calendar year. Even though there are some logical reasons behind this, it doesn’t always have to be the best option. If you have already selected your tax year the first time you filed for taxes, it is not too late to change it later on, of course, with permission from the IRS.
Another thing to keep in mind is that you have to choose a calendar tax year if you don’t have special accounting needs for your company. In addition to this, you should choose a fiscal tax year if you want your usual 12-month accounting cycle to end in a month other than December. Choose a short tax year if your business didn’t exist for a whole tax year or if you have changed your accounting period.
Be sure to consider these facts if you are a new business owner. If you are self-employed, be sure to look for those tax write-offs. There are many resources that can help you discover them and save up.