Small Business Taxes
While the American Dream may be owning your own small business, that dream should also include paying taxes. Like individuals, small businesses have to pay their fair share to the IRS every year. Many people wonder what exactly is a small business. Normally this includes companies with less than 100 or so employees like an S-Corp, sole proprietor, or partnership, but the term is used broadly to define anything that an average person can start up on their own without having tons of capital invested.
Just like individual taxes, there are many deductions for small businesses that need to be considered. Tax preparation is really important since many of these companies do not profit in their first few years of existence. Many even do not make it to the 5 year mark before closing the doors for good. Close to 80% fail for one reason or another, so be sure to have a great business plan and be prepared for anything.
Some of the newer deductions passed include the Work Opportunity Tax Credit, Health Care Tax Credit, and a credit to encourage companies to hire previously unemployed individuals. These recent credits were part of the Obama's Administration recent laws passed trying to help stimulate the economy. It all starts with small business so these were implemented to get the country back on track.
A general rule of thumb for small company accounting is that if it costs money to the business then it is probably deductible in some way or another. There are many software companies out there that offer tax systems that can help you if you are unsure or want the ease of entering everything into a computer. There are also programs out there that allow you to scan receipts and they are saved as a file on the computer. This will greatly reduce all your paperwork you have to keep and should save an enormous amount of time as well.
The goal of a tax deduction is to offset income and to minimize taxes due. With most tax rates write off of certain items can be very beneficial. Depending on the taxable income of the small business, and how it could be classified, the highest rate of taxation is 39%. This is currently higher than the highest individual bracket and is anticipated to stay that way. Corporations are normally a huge money maker for the IRS so it is in their best interest to keep rates high enough but without sacrificing economic growth.
As with any tax preparation service, the client needs to interview potential CPA's or tax experts to determine if they are going to meet their needs. Also small business is different and not all CPA's have the same amount of knowledge about each subject. Many specialize in certain fields and may have a leg up on the competition.
The key is to ask the proper questions to meet all you needs. If you are looking at your current tax rates write off ideas or just have a few simple questions, you should not hesitate to contact a local professional. With profit margins being as narrower as they are these days, owners need to stretch every dollar they can.