Taxes are an integral part of any business venture. Understanding them can be a challenge, especially for the small business owner.
A Comprehensive Overview helps owners understand how their business is taxed at the federal, state, and local levels, including sales, excise, employment, and payroll taxes. Also included are tips on tax deductions, credits, and compliance issues.
Determining Your Activity as a Business
If you have a side hustle that has turned into a full-time business or are starting a new venture, it is crucial to understand that the structure of your company plays a vital role in your day-to-day operations, taxes, and how much of your assets are at risk. When starting a business, seeking guidance from a local financial advisor is essential. Professional advisors like those at https://denvertaxadvisor.com/services/business-taxes/ can answer your questions and help you determine the best structure for your business.
Once you determine your company’s tax status, you can calculate the federal, state, and local taxes owed. Taxes are calculated by subtracting business tax deductions from net business income, and the amount of taxes owed will depend on your entity type and the tax rates applicable to that entity. You may also be eligible for certain tax credits partner with a tax professional to maximize deductions and maintain compliance.
Determining Your Tax Rates
As a business owner, you must pay several types of taxes. These include income tax, property tax, sales tax, employment tax, and excise tax.
Almost all of these tax rates are tied to the reported income of a person or corporation. Salaried employees pay their income tax and FICA taxes, while small business owners must pay self-employment tax in addition to their income tax.
To determine your state and local business tax rates, visit your State’s Department of Revenue website. It will provide information on business tax rates, collection methods, and filing deadlines.
You can take advantage of many tax deductions when running a business. For example, you can deduct subscriptions to industry publications and professional membership fees. You can also write off your startup costs as capital expenses and amortize them over the life of your business. Keeping careful records will help you stay organized and prepared for tax season.
Determining Your Deductions
Business taxes are necessary, but many small-business owners must take advantage of all the available deductions. Deductions are subtracted from taxable income to calculate profit and loss, and minimizing taxable business income helps you pay less in taxes.
Generally, any ordinary expense (common and accepted in your industry) and necessary to your business can be deductible. Typical business expenses include advertising and marketing costs, bank fees and commissions, software and utilities, and office supplies. Meals with clients and travel (including vehicle expenses) are also deductible, as are insurance premiums and startup costs.
Keeping track of your business expenses is essential to getting the most out of your tax deductions. Creating a separate checking account solely for your business makes it easier to manage business transactions. Also, consider tracking and separating any personal use of assets like your laptop, cell phone, or car for business purposes.