Have you heard of the Queen of Mean?
Nicknamed, “The Queen of Mean”, self-made businesswoman, Leona Helmsley thought she was above the law. However, after disgruntled contractors sued Leona for nonpayment, the IRS began investigating her.
Soon the IRS found Leona guilty of Federal income tax evasion, and she had to pay a $7.1 million tax fine, as well as serve a 4-year prison sentence. Leona learned the hard way that when it comes to taxes, no one is above the law.
If you’re filing small business taxes for the first time, it’s your responsibility to do things the right way. While you may not plan on intentionally misleading the IRS, even unintentional slip-ups can cost you time and money.
Luckily, we’ve created a short guide all about taxes for small business owners just like you. Read on to learn the right way to file your small business taxes. Here are the tax filing advice whether you do your own taxes or not
Filing Small Business Taxes for the First Time
Before we dive into our insightful tax advice, we want to take a moment to congratulate you. You’re taking a big step towards running a successful, and legitimate company.
While filing small business taxes for the first time can feel overwhelming, it doesn’t have to be. Instead, be patient with yourself as you work towards learning about different tax terms, forms and requirements.
As your company continues to grow, so will your knowledge of the best tax practices.
1. Know the Different Types of Taxes
Let’s start by helping you become familiar with the different types of taxes businesses pay. Here are a few types of small business taxes:
- Income tax
- Sales tax
- Payroll tax
- Self-employment tax
- Property tax
- Miscellaneous business taxes
Keep in mind, however, that not every business will have to pay every tax on our list. Instead, the type of business you own will play a big role in the type of taxes you owe.
State and Federal Income Tax
If your business makes a profit, you have to pay federal income taxes. It’s also possible that the state you live in will require you to pay state income taxes.
Sales Tax
Sales tax applies to businesses that sell products or provides specific services. It’s common for business owners to have their customers account for the sales tax. However, it’s the business owner’s responsibility to collect the right tax amount and send it to the right tax authorities.
If the owner fails to collect the right amount of sales tax, they have to pay out of pocket, to make up the difference.
Payroll and Self Employment Tax
Does your business have employees? If yes, you can expect to pay payroll taxes to cover Medicare, unemployment insurance, and Social Security.
If you don’t have employees, you’ll probably wind up owing self-employment taxes. Self-employment taxes apply if your business is an LLC, partnership, or sole proprietorship.
Property and Miscellaneous Taxes
Property taxes can apply to any real estate property you own or business equipment. Finally, there are also miscellaneous taxes your small business may have to cover it. For example, there are alcohol taxes, franchise taxes, and fuel taxes.
2. Meet With Your Bookkeeper
Does your company use a third-party for bookkeeping? Or do you have an in-house bookkeeper? Whether you outsource or do the bookkeeping yourself, the very first step you want to take is to have a meeting with your bookkeeper.
Your bookkeeper is responsible for recording all of your business transactions. Their knowledge of your company’s financial situation is an invaluable tool when it comes to preparing your taxes.
Now, keep in mind that your bookkeeper is not responsible for preparing your tax returns. Instead, they’ll be able to help answer a lot of your tax-related questions before you start filing.
While meeting with your bookkeeper, double-check your business purchases, and expenses. Next, review all of your sources of income, and the amounts.
3. Hire a Tax Preparer
Once you’ve ensured that all of your accounts are completely reconciled, you can make a tax appointment. We suggest hiring a tax preparer you can walk you through some of the more complicated tax questions.
For example, professional CPAs will be able to teach you more about the extended tax deadlines, business credits, and more. Hiring a professional will also give you the peace of mind you deserve. Instead of filing taxes for the first time and hoping you did things right, you can be certain everything’s in order.
If after filing, you’re less than thrilled with the taxes your company owes, it could mean it’s time to make changes to your company. Let’s take a peek at how restructuring your company can change the tax process.
4. Consider Restructuring Your Company
What type of business structure do you have? Different business structures have different tax requirements. The type of business structure you have will also play a part in determining what tax form you need to use.
If you’re not sure you have the best business structure to set your company up for success, you should look into restructuring.
Sole Proprietorship
If your small business is a sole proprietorship, it means there’s only one owner of the business. Single owner business structures are one of the easiest ways to build a company. They also deal with fewer government regulations and restrictions.
If you are the owner, you are the sole proprietor of the business. You’ll most likely need to pay self-employment tax if your companies earning a profit.
Partnership Structures
If your company is a partnership, it means there’s more than one owner. If your business isn’t able to pay its taxes, it’ll be up to the partners to cover the difference.
As a partnership, each partner will need to complete a tax form to demonstrate their shares of the company’s income and losses.
Small Business Corporations
Corporations give owners the ability to separate the company from themselves. This means that if the corporation isn’t able to pay their taxes, the owners won’t have to worry about their personal assets being at risk.
Instead, the corporation will owe business taxes, and then each owner will have their own income taxed as well.
File With Confidence
There you have it, 4 of the best tips for small businesses filing their tax returns. When you have the right team helping you, and take your time to do things the right way, you’ll never have to worry about tax penalties or fines.
What new things were you able to learn today about filing small business taxes for the first time? Was it the different type of taxes small business owners face? Or were you surprised to find out that your business’s structure affects the way you have to file your returns?
We love helping our readers learn and discover new information that can make their lives better. For more insightful advice, read another one of our articles today!
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