5 Things You Need to Know About Small Business Taxes

business taxesTaxes can be a headache for anyone. But, as a small business owner, wrapping your head around the process of filing business taxes, for the first or fifth time, can be confusing at first.

When running your small business, you may find it necessary to minimize your business’s tax bill as much as possible, and make sure you’re making deductions wherever possible.

When planning out your tax plan, here are a few important things to consider.

Related: Tax software makes your business filing much easier.

Defining Business Income

Before making too many deductions, it’s important that you have a strong understanding of what you can define as “income;” so, be sure to remember that your gross income refers to all of your income regardless of the source you derived it from.

  • Services and goods can be labeled as income for your business. If you trade or barter for services, the market value of the goods you received should be included in your reported business income.
  • Constructive income refers to anything that is available to you, regardless of if you utilize it or not. For example, if you receive a check at the end of the year but don’t deposit it for the next year, you will still be responsible for taxation at the time it was received.
  • Those excluded from your income include: gifts and inheritance that are not specifically earned by your business. Many fringe-benefits provided to business owners and employees are also covered by this title.
  • Return of capital investment also is not considered taxable income. If you sell an asset and get your money back in exchange, only the resulting profit is considered taxable.

Examine Your Business Structure

Your business structure is critical to success, but is almost important to look at when figuring out your business taxes. Some smaller businesses and those who act as individuals can be eligible for tax breaks. Do you qualify?

  • Sole proprietorships, partnerships, or LLCs have lower income-tax rates, which make them more desirable.
  • Though income tax rates might be lower, independent business owners still have to may self-employment taxes, and don’t get to split the cost like corporations do (where employees pay half and the company pays half).

Take Advantage of Deductions

Your business will likely require certain expenses, from rent to payroll, and much more. Some valid business tax deductions include:

  • Reasonable allowance for salaries or other compensation for services
  • Travelling expenses including meals and lodging while in pursuit of business
  • Rental use for business purposes; the deduction allowance is dropping to 25,000 as of January 1,2013.

Good Record Keeping

Like in any aspect of business, it’s important to keep thorough and organized records of your tax information. Keeping good records will allow you to access information more easily, and can support your case if audited by the IRS.

Employee Taxes

Complying with employee tax requirements is essential for keeping your business afloat. If you run into a sticky situation with calculating payroll, it could lead to unhappy workers or worse, expensive penalties.

  • Withhold Social Security tax (6.2% of wages) and Medicare tax (1.45% of wages) on each paycheck as well as other necessary deductions.
  • Deposit employment taxes to the government either electronically or by check deposit to a bank.
  • Pay your employer share of FICA taxes, which are the same as the employee share.

Related: Purchase Payroll Software with one of our qualified vendors to help with your 2013 taxes.

As small business owner, you have more tax obligations than the regular individual. Be sure that your finances are in order and your payroll is all checked out; but don’t forget to take advantage of the small business-friendly deductions, as well.

Business.com Editorial Staff

Business.com Editorial Staff

Author's Website: http://www.business.com

Author's Social Links: Author Google Plus Profile Link Author Facebook Profile Link Author Twitter Profile Link Author LinkedIn Profile Link

The Business.com Editorial Staff writes on topics relevant to small and medium-sized business (SMB) owners. Posts cover best practices, top tips, and studies that deliver insights specific to SMBs.

Our team has backgrounds in journalism, English, philosophy, marketing, entrepreneurship and management, providing us the opportunity to share unique viewpoints on all things affecting small and medium-sized businesses.

Posts by Business.com Editorial Staff

What Target Should Have Done to Prevent Their Security Breach

Quote of the Day – July 24, 2014

Quote of the Day – July 23, 2014

Richard Branson on Why Patents Kill Innovation

Quote of the Day – July 22, 2014

See all posts from this author »

View Comments

One Response to 5 Things You Need to Know About Small Business Taxes

  1. Pingback: Tax Season Tips for the Self-Employed | Business.com Blog

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>