5 Things You Must Know About Taxes as An Entrepreneur
Being one’s boss is all fun and games until it’s time to face the challenges. One unavoidable thing every business owner despises the most is tax season. Not only does filing and paying taxes take up a chunk of business costs, but it also requires considerable time, effort, and energy.
The issue is not with paying duties but the unnecessary, long, and complicated process requiring considerable attention and carefulness. A tiny mistake, and your business might face serious legal consequences. It often happens with several new entrepreneurs unaware of many crucial elements of taxes. The case becomes worse for small businesses that already have limited capabilities and means of operation.
Below, we have highlighted a few essential tax tips every entrepreneur must know.
Benefits of hiring professionals
If you are new to tax management or have struggled with it, consulting a professional would be a good idea. Tax specialists are experts who can minimize your tax liability, save your money and time. Remember that the tax code is not easy to crack, and small mistakes can be costly. Hence, it is best if a professional does the job. Taxation experts can also give you valuable advice on smart tax-saving decisions. They can reduce the risk of an audit and remove the hassle of doing it yourself.
However, you must ensure to hire an experienced and highly qualified tax consultant to do the job for you. Someone with an accredited LLM Tax online degree would be ideal. It is a crucial matter, and therefore, a thorough background check would be essential. Since eLearning allows such professionals to attain industrial work exposure, they possess relevant experience alongside academic achievements, making them ideal.
Remaining organized is critical for efficiently managing your finances. If you want your taxes not to be as painful as you anticipate, ensure to keep all your business’s financial records organized and in order.
You must also maintain a detailed book of accounts with all of your company’s financial data. By keeping books of accounts, you can reduce your company’s tax liability. It will also help in monitoring trends and analysis and making accurate predictions. Well-kept books will also allow management to handle unforeseen circumstances, find critical data, and attract funding. Regular books of accounts also assist in making financial decisions promptly and accurately.
Know the different kinds of business taxes
If you are a first-time entrepreneur, you are most likely unaware of the hundreds of taxes you need to pay for your startup to mark your success. You also need to pay a self-employment tax of around 15.3%. However, you can write off almost half of it on your tax return. Some other standard taxes that businesses pay include:
- Payroll taxes: If you have employees working at your company, you will need to pay payroll taxes on their salaries. There are four types of payroll taxes, including social security, Medicare, federal unemployment, and federal income.
- Sales tax: As the name suggests, a sales tax is part of the revenue paid to the government on the sale of consumer commodities. Consumers pay sales tax every time they make a purchase. There are several types of sales taxes, including general sales tax (GST), value-added tax (VAT), wholesale sales tax, retail sales tax, etc.
- Property tax: If you own or lease any property to conduct your business, you will have to pay tax for it. The property tax rate depends on your land’s value, size, and location.
- Excise tax: Some businesses also have to pay excise taxes. These taxes are applicable on goods and services like tobacco, fuel, and alcohol. Since excise taxes are indirect taxes, consumers directly don’t pay them.
- Gross receipt tax: A gross receipt tax, also known as gross excise tax, is similar to a sales tax. It is the tax on the gross revenue of the corporation. Only a few states require companies to file gross receipt taxes in the US, while most states have a standard income state tax for businesses.
Know about tax deductions and write-offs
Many business owners often overpay taxes because they don’t fully utilize their tax deduction allowances. Another reason you need to maintain books of accounts is to carefully track all your expenses that you can write off during tax season.
You can take several tax deductions, including advertising and media, business meals, employee training, business insurance, and contract labor. You can also write off expenses on business interest, bank fees, depreciation, utilities, and office supplies.
Never discard your receipts and always keep track of your expenses and spending. Tax deductions can be a blessing in disguise for several businesses.
Don’t forget to pay your quarterly payments
Quarterly tax payments can indeed be a hassle, but it is best to get done with them as soon as possible. As mentioned above, skipping tax payments can lead to troubling consequences. And you surely don’t want that, especially with your newly commenced business.
The best practice would be to put a gentle reminder on your company’s calendar. And don’t forget to pay your quarterly taxes every June, September, January, and April.
Recent reports confirm that governments and various authorities are targeting more and more small businesses for tax audits. That means trying to escape from paying your taxes is no longer an option and shouldn’t even be in any case. Paying taxes is a legal responsibility that you must not avoid.
Taxes don’t have to be troublesome if you plan and strategize accordingly. So, ensure to keep proper records of all your company’s financial history, make use of use tax deductions, and meet deadlines. Consult professionals for help if you ever feel you are struggling since taxes is one job that requires you to be highly efficient.