Manage Taxes For Their Business

Experts say that people who manage taxes for their business regularly make a few mistakes without even knowing it and can run into IRS trouble. Here is some tax advice for small business owners, so you can avoid common pitfalls.

Wrong Business Structure

The IRS is really watching out for S Corps that aren’t paying the owners a reasonable salary. In an S Corporation, active owners need to take some salary and cannot take all the profits out as distributions. However, in a sole proprietorship, partnership or LLC partnership, you cannot pay yourself a salary out of payroll. Business structures have different rules for how owners can pay themselves. When business owners don’t know the rules, they set themselves up for tax trouble.

When you launch a business, you need to decide on a business structure (e.g., a partnership, LLC, or S or C Corporation). You also need to pick accounting methods, including an approach to recognize revenue. Once you make these decisions, they’re difficult to reverse. It’s a lot easier to make the right choice the first time around. Take the time to carefully weigh the pros and cons. Don’t just focus on what’s right for now, but consider how future business growth will play in.

Home Office Deduction

Small business owners are sceptical about taking the home office deduction. Remember, you don’t get audited just because they take the home office deduction. You get audited because you take the deduction incorrectly. You are eligible for the home office deduction if you meet one of these three criteria. If you meet one of these criteria, you should not be afraid of taking this deduction.

• Your home office is a separate, unattached structure from your actual home that you only use for business.
• It is used exclusively and on a regular basis as your principal place of business.
• You meet clients, customers or patients on an exclusive and regular basis at your home office.

 

Right Accountant

If there’s a common theme in the advice of all experts that I have come across, it’s that you can avoid tax problems by planning early and working with a quality accountant. That’s the best tax advice for small business owners.

Small business owners don’t spend enough time finding the right accountant, someone they trust and feel comfortable calling or emailing with questions. It is important to find a trusted advisor in your accountant. Business owners need to find someone they click with.

Start-Up Costs

A lot of times, when people start a business, they bring in assets and expenses they have already paid for. When you’ve opened a new business and made sales, you can begin to amortize your start-up costs. This includes expenses and assets from years before you started the business. Remember to depreciate the lower of cost or fair market value of the your computer when it was placed in service, even if you bought it years ago.

Estimated Taxes

Some business owners have trouble budgeting and fall behind on their payments. They underpay and end up owing interest and tax penalties. When you own a business, you may need to pay estimated taxes every quarter based on your profits.

Incorrect Payment

When you hire someone, you classify them either as an employee or a contractor. Business owners get in trouble if they classify people as contractors when they’re really employees. This is one thing that the government is really auditing. There’s a lot of money they can get from assessing taxes, interest and penalties when they find a business is misclassifying employees. It can be easier and more cost-effective to hire a contractor, since you don’t pay the employer’s share of payroll taxes and workers’ compensation. You also have no obligation to provide benefits. Plus, you don’t have to deal with collecting and remitting payroll taxes on their behalf, either.

In today’s world of internet, HyperEffects content and community engagement strategists help thought leaders connect and inspire with purposeful content strategies. Contact us for our one-hour free consultation session to understand the concept and incorporate it in better online engagement. If you have any questions about your particular circumstances, it’s always best to check with your legal and tax professional.