Taxes Should Already be on your Mind
If You Own a Small Business, Tax Season Should Already Be on Your Mind
Ah, it’s finally January…the hectic weeks between Thanksgiving and Christmas are now behind you and a fresh new year is underway. You may be tempted to take a break from planning much of anything right now, but don’t take the bait. A new year means a new tax season has begun and it’s definitely not too early to be planning to file taxes for your small business. In fact, any tax attorney will tell you taxes are something to consider year round.
No matter how business savvy you may be, you more than likely don’t have the complete tax knowledge needed. For instance, did you know that partnerships report on Form 1065? That if you’re a sole proprietor, your business income and expenses are reported on a Schedule C attached to your personal income tax return? Are you aware that if you have a corporation or have elected to treat your LLC as a corporation you’ll need to prepare a separate corporate tax return with Form 1120? That you use Form 1120S is if you have elected S Corporation Status? Does this sound a bit confusing? It is.
Jennifer Dunn, of Square, Inc., recently offered a list of the most common tax mistakes for small-business owners. With the guidance of a qualified tax attorney you can easily avoid these and other missteps.
Not treating your business like a business.
Many small businesses are started by a simple hobby. One day you’re baking your grandma’s lemon bar recipe for a few friends and the next you’re the hit of the local farmers market. It can be a shock to realize that what was once a fun hobby is now a money-making venture. But it will be a bigger shock if the IRS realizes that first and comes after you.
The number-one tax mistake new business owners make is not realizing they even have a business. If you made over $400 in self-employed income in a taxable year you may be required to file Schedule C (Profit or Loss from Business) and Schedule SE along with your regular 1040 income tax form.
Not paying quarterly estimated taxes.
The U.S. has a pay-as-you-go tax system. That’s why, when you have a W-2 job, your employer takes taxes out of your paycheck every week. When you’re self-employed, there’s no employer to take care of your periodic tax obligation. It’s all on you to pay as you go.
The IRS—and most states with an income tax—require small-business owners to remit quarterly payments to fulfill their tax obligations.
Quarterly payments can actually be quite handy as your business becomes profitable. They allow you to catch up on your tax obligation as the year progresses, rather than get hit with a huge tax bill at the end of the year.
Leaving money on the table.
Many of the expenses you incur in the course of running your business are tax deductible. It’s pretty easy to handle most tax deductions. If you buy something, such as office supplies or a banner ad on a targeted website, keep the receipt and deduct it at the end of the year.
But two of the most lucrative deductions are more complicated than that. The home office deduction, which allows you to deduct expenses related to the portion of your home that you use for business, requires precise calculations. And the automobile expenses deduction takes very dedicated recordkeeping throughout the year.
Nevertheless, don’t ignore these two deductions. They can mean big tax savings at the end of the year. If in doubt, contact a reputable tax attorney to help you make sense of it all.
Treating employees like contractors.
As your business grows, you may find it’s time to bring on some help. Hiring an employee involves remitting payroll taxes and HR paperwork. On the other hand, hiring a contractor—someone who takes care of his or her own taxes—is fairly simple. But just because hiring a contractor is easier doesn’t mean it’s always the right choice.
The IRS considers an employee to be someone whose time and location are controlled by you. So, if you require your worker to come into the office or work a set amount of hours, you may have an employee and not a contractor. Employees are treated differently than contractors when it comes to taxes.
Not dealing with sales tax.
If you sell products and live in one of the 45 states (plus D.C.) that has a sales tax, you are most likely on the hook to charge sales tax to your buyers. Sales tax can be complicated and many sellers either get it wrong or try to ignore it altogether. Both strategies can have dire consequences. If you sell products, get to know sales tax.
Failing to consult help.
Hiring a professional can seem like an unbearable business expense, especially when you’re just starting out. But a good tax attorney gives you peace of mind you’re doing everything right. He or she often also saves you money by finding deductions or tax credits of which you were not aware. It’s almost always a good idea to get professional help when it comes to your business taxes.
The experienced team at Oliver & Cheek, PLLC possesses a wealth of tax law knowledge. They can help clients avoid controversies and save money in taxes, interest, and penalties by helping plan transactions and structure operations. When you file on your own you’re also on your own if the IRS wants to take a closer look at your tax return. When you reach out for assistance with your business tax filings you can be confident you have the necessary backing if the IRS comes calling.
For more information, or to receive assistance preparing your personal or business taxes, please contact the respected attorneys at Oliver & Cheek, PLLC by calling (252) 633-1930 or visiting www.olivercheek.com.
(Sources: Internal Revenue Service, American Institute of CPAs; Square, Inc.; National Federation of Independent Business; and U.S. News & World Report.)