Small businesses face a heavier tax burden than their larger counterparts. It's not because they pay more taxes, it's because the cost of compliance is 67% higher for small businesses.
Contents1. Taxes on self-employment2. Missing estimated tax payments3. Misrepresentation of income and expensesReady to handle common tax issuesMost accounting responsibilities fall on small business owners. This takes time and leaves many people unprepared to deal with tax issues.
If you're in a similar situation, you'll want to keep reading. Find out what are the main income taxes for entrepreneurs and avoid tax problems.
As soon as you register your business, your tax liability changes. As an employee, you would see deductions for FICA.
The federal government requires you to pay 2.9% for Medicare and 12.4% for Social Security. Your employer would pay half and you would have withheld half of your check.
Since you are self-employed, you are responsible for the entire amount. This represents 15.3% of your profit.
Do you expect to owe more than $1,000 in federal income taxes? If you do, you must pay estimated quarterly taxes.
It's not just estimated federal taxes you need to worry about. States and even some municipalities require quarterly payments.
If this is your first year in business, you should consult your tax advisor to see how much you need to pay. After that, take the amount of tax due for the year and divide it by four.
You don't have a tax advisor yet? Get one as soon as you can and read this to learn how to choose a tax advisor.
The best thing you can do for your business is to have a separate bank account just for taxes. Deposit a percentage into this account each time you receive money.
This alleviates the stress of finding a large sum of money each quarter.
It's easy to get confused about what you can deduct and what you can't deduct as a business expense. The majority of businesses file their personal and business tax returns together.
They file their income taxes on Form 1040 and Form Schedule C, which show business income and expenses.
Be sure to document all income, including cash payments. You also don't want to misclassify a personal expense as a business expense.
The best way to guard against tax problems is to keep good records. Keep receipts for every business expense and make sure you can justify it as a business expense.
For example, if you are attending a business lunch or coffee, write a note on the back of the receipt. Mention who you were with and the business discussed.
Taxes are an important part of starting and running a business. You can avoid common tax problems by learning what they are. This makes it easier to work with a tax specialist and you are prepared to handle all tax issues.
Want more tips to help you start your business? Check out the other great blog posts today!
