As a small or medium size business owner, you may assume the IRS isn’t concerned with your tax liability. However, this couldn’t be further from the truth. In fact, reports suggest that the IRS has increasingly targeted small businesses for audits in recent years.
While the government may not be interested in your business before it turns a profit, the sooner you get your financial house in order the lower your risk of potentially critical issues in the future. Here are four things every new small or medium size businesses should know about federal income taxes.
You’re Responsible for Paying Self-Employment Tax
If you’ve never owned your own business, then you are likely unaccustomed to paying self-employment taxes. As a self-employed person, you are responsible for both your own portion of the self-employment tax and the half typically paid by an employer. Self-employment tax is comprised of Social Security and Medicare taxes.
It’s important to take advantage of all possible business and startup expenses to limit net income and, by extension, your self-employment tax burden.
You Must Make Estimated Payments
As a new small business owner, you probably know that it’s important to pay taxes accurately and on time. However, you may not realize that self-employed persons are responsible for making quarterly estimated tax payments throughout the year.
While startup founders are excused from making estimated tax payments in the first year of operation, they are responsible for submitting accurate quarterly payments in the years to come. Business owners filing as sole proprietors, partners and S-corporation shareholders must all make estimated tax payments if they anticipate owing $1000 or more for the tax year.
Your Legal Entity Affects Your Tax Burden
The legal entity you elect to form can have a tremendous effect on your tax liability throughout the years. From sole proprietorships and LLCs, to S corporations and partnerships, there are various business types, each with its own benefits and limitations. For example, S corporations offer small business owners the advantage of paying taxes at the shareholder level, rather than being subject to higher corporate rates. However, a company of this kind must be limited to 100 shareholders and feature a single stock class. On the other hand, while C corporations can deduct a wider range of expenses and include hundreds of shareholders, these groups must contend with double taxation.
You Might be able to Deduct More Than You Think
It’s no secret that small business owners must learn ways of stretching their financial resources. Most importantly their cash. McBee and Co., PC helps our clients with cashflow analysis, managing, payroll expense, to business rent, to utilities. The various operational costs of a startup can be overwhelming. Fortunately, our experts at McBee and Co., PC can help the new business owner plan and maximize the number of deductible expenses in order to minimize your tax burden while maximizing company profits.
Do your research to identify all possible deductions and give your company a leg-up come tax time.
Want to ensure your tax return is on the up-and-up? Consider hiring a McBee and Co., PC to help you maximize deductions while ensuring your startup is meeting its tax burden. Not only does working with a professional safeguard your business and personal wealth, but it also allows you to focus on what matters: building your company into a successful operation.