Entrepreneurship can be real rewarding when it comes to freedom and financial stability, however, if you own a small business, and it has kicked off really well, there is one thing that you don’t have: Time to look into and sort out your tax issues. While most employed people think that doing your taxes is pretty straightforward, things are quite different for entrepreneurs. However, a quick digging through some facts can save you thousands of dollars.
You may have to like playing basketball in order to be a basketball player but you don’t necessarily have to like paying taxes in order to be a taxpayer. Whether or not you can pay the full amount you owe, you have to file the tax return anyway in compliance with the law, and pay as much as you possibly can. You can of course then go fill Form 9465 in order to set up a future payment plan for the left-over amount.
When you file for tax return, depreciation actually acts like deduction. The wear and tear of business items and any other kind of depreciation can be claimed. According to IRS, some of the items that are depreciable are software, copyrights, patents, equipment, furniture, vehicles, machinery and buildings. So, contrary to the popular hype, the depreciation can help you when you file and is not necessarily a bad thing.
You have two options when it comes to claiming depreciation; either to draw small chunks over a longer period of time in order to relax your tax situation a little each year, or to claim it all in a lump sum at once. As there are numerous ways to decrease your tax liability, it is really important to have a definite strategy lined up and reviewed by a tax professional like Kenneth M Perkins, CPA/PFS, in South Boston, VA.
Although entrepreneurs like to go solo and there is no denying that they do it pretty well, tax preparation is one technical task better suited to the tax preparers than entrepreneurs themselves. As an entrepreneur, you always have to be honest with taxes since there is no way around them and therefore, very often, you end up overpaying because you fail to take advantage of the available deductions. When it comes to taxes, realize that your time is precious and let an expert do the job for you. Find a tax professional for financial advice tailored according to your needs. Kenneth M Perkins, CPA/PFS in South Boston, VA can further guide you in this regard.
According to Mike Piper, a Certified Professional Accountant, the first time business owners often forget to make quarterly expected tax payments since they are used to having taxes withheld from their salaries. Take the help of your accountant to figure out the estimated quarterly tax due on you. The factor of city, county or state taxes should also not be overlooked in this regard.
First time business owners are notorious among tax professionals for mingling their personal and business expenses which, at the end of the year, not just spins the heads of their tax-preparers but also eventually raises the cost of tax-preparation. In order to avoid this mess and make easy for your accountant to sort it all in place for you, you need to set up separate credit card and checking accounts for your business.
A lot of entrepreneurs find the taxation rules under S Corporation for their LLCs to be much convenient. There are multiple tax advantages involved with this decision including that your company’s profits are only subject to income tax, although your salary will be subject to payroll taxes. In this way, you can save a lot depending upon how much you decide to pay yourself, according to Mike Piper, a Certified Professional Accountant.
One of the things you might want to find a tax professional for is to set your payroll game right. The fines imposed by Internal Revenue Service are enormous, and if you don’t have the necessary set up to deal with your payroll complexities, you might end up in an unpleasant situation by landing in the IRS’s list of defaulters. One of the most important questions asked by entrepreneurs all the time when their business is ready to bring on employees is if they should pay them as W2 employees or 1099 subcontractors. According to Jessie Seaman, a tax attorney with Tax Defense Network, in case the worker you mentioned as a contractor is actually an employee, “costly penalties are assessed and a large tax bill will result due to unpaid Social Security and Medicare taxes.”
The expenses done on launching a start-up can be used as a deduction. Seaman advises us to be sure to take the allowable deduction for a start-up. Also, the amount you spend in investigating whether or not your business idea is viable, ordering supplies and training your employees, can be included in Research and Development Deductions. According to Seaman, “you can deduct up to $5,000 of research and development and startup costs.”
Saving for your taxes on a month to month basis helps you fight off the usual panic that sets in as the tax season comes around the corner.
The key to taking the tax breaks and deductions available for you is to keep a track of your expenditures so that you can demonstrate to the auditor that your expenses are truly related to your business. IRS is very aggressive about this so it’s highly imperative that you keep meticulous records of your invoices, receipts etc., advises Chas Roy-Chowdhury, head of taxation for the Association of Chartered Certified Accountants. Entertainment expenses and business meals are closely reviewed by IRS so you need to explain the attended meal or event and the business purpose related to it. The business owners who have all the required documentation and take legitimate deductions often end up saving the most on tax.
