I have gotten myself a pretty good summer job down here. I am working at a little amusement park near Whitecap Beach in Corpus Christi. It is not so bad of a deal, especially since I am going to be sharing a place on the beach with five other guys. I had been looking at some fairly nice Corpus Christi apartments, but it became more and more clear that this was just not a very practical idea. At least it would not have been anything that would have worked out if I had gotten a single bedroom place. That would have been at least eight hundred and fifty dollars a month. Continue reading →
Small business tax deductions are implemented by the government to encourage entrepreneurship and investment. A business owner can save large amounts of money through these small business tax deductions. Special small business tax deductions are granted for home based business establishments.
Small business tax deductions are usually implemented on the expenses involved in the business. These expenses include office stationeries, advertisements, postage charges, shipping fees, telephone bills, and Internet charges. The receipts of each purchase should be produced while filing for the taxes. In case a business owner joins any franchise, expenses such as franchise fees and kits can be claimed as deduction. Even the gift items and freebies given to the customers are accounted as business expenses and thus attract small business tax deductions. Business owners usually have to face the problem of bounced checks received from customers. These checks along with the bank fees can be utilized for claiming tax deductions. The rules governing small business tax deductions have special provisions for business owners who have purchased computers. The business owner can claim for tax deduction in an amount equivalent to the cost of the computers. Additionally, he/she can claim depreciation for 3 years following the purchase of the computers.
The tax deductions largely depend on the type of business and the expenses that are involved. A business owner should ideally consult a professional tax advisor before filing for taxes. Taking the business structure into consideration, the tax advisor would be able to give the best suggestions regarding small business tax deductions. He/she can also help the owner adjust the income so as to attract the maximum deductions. Small business tax deductions thus help in avoid paying high taxes, which in turn helps in the growth of the business
This article will guide you through the small business tax maze and describe in details the various tax types your small business may be expose to. Use the article to learn which federal and state taxes you, as the owner of a sole proprietorship, general member in an LLC or officer of an S. Corporation is responsible for.
Federal Income Tax
The Internal Revenue Code (the IRC) is the source for imposing income tax on small businesses. The tax code treats each entity type a little different but in the end the income tax on the business taxable profits is payable by the small business owner. Sole Proprietor has to file schedule C to report business income and expenses and then report the taxable income on form 1040 where he discloses all of his income sources. Member of a partnership or an LLC reports his/her share from the business taxable income on form 1040 and Owner of an S. Corporation does the same. The rates of the federal income tax that a small business owner will pay depend on his/her filing status and residency status. For current tax rates please refer to IRS Publication 17 To register with the IRS you must fill out IRS form SS4 to obtain Employer ID Number (EIN).
State Income Tax
If your business is operating in a state that imposes income tax on business income, you will be liable for that tax in addition and regardless of the federal tax due on the same income. Very few States (Seven to be exact) do not impose income tax and among them are Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Two others, New Hampshire and Tennessee, tax only dividend and interest income. In general state income tax rates range from the lowest rate of 3% in Illinois to the highest rate of 11% in Hawaii. To register with each State’s Department of Revenue, you must complete the applicable registration forms to obtain State Tax ID Number.
Payroll taxAs soon as your business start hiring part or full time employees, it will be subject to Federal & State tax withholding from the employees’ gross wages (For current Federal Withholding rates please refer to IRS Publication 17 and for the Stare withholding rate, please refer to the State’s Revenue or Finance department), Social Security, also known as FICA (currently at 6.2% of gross wages is the employer’s responsibility and the same amount is the employee’s contributions with cap of $106,800 on gross wages) and Medicare (currently at 1.45% of gross wages is the employer’s part and the same amount is the employee’s contributions), Federal & State income tax withholding (at the rates publishes by the IRS and each State’s department of Revenue), Federal Unemployment, also known as FUTA (currently at a rate of 0.008 of gross wages up to $7,000 per year) and State Unemployment, also known as SUTA, at rates assessed by each State Unemployment Insurance Department. To register with each State, you should complete an employer application with the Department of Revenue and open an account with the State’s Unemployment Insurance Department.
Sales tax is tax imposed on gross sales made to end users (as appose to resellers who purchase the product for inventory) and has many names: transaction privilege tax, gross receipts tax, general excise tax and more. The tax is imposed by each State, and in many cases includes Base Rates for all States residents and then additional rates that vary by county and city. Rates of sales tax vary by States with few States that impose zero percent tax (such as Delaware, Montana & Oregon) and others that impose rates in excess of 10% (such as Chicago Illinois)
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Different Tax Return Filing Options
Every wage earning citizen of the United States of America is required to pay their income taxes; for that matter, also Medicare and Social Security taxes too. Further, almost every citizen pays taxes in some fashion or other regardless of wag earnings in the forms of sales tax, property taxes or even vehicle registration. However, when it comes to corporations however, there are distinct differences in preparing taxes for big corporations and businesses. Small business tax returns are often complicated and complex. The following tips may prove to be useful in filing a business’ tax return.
Though many business owners prefer to personally file their tax returns, it is possibly to the best interest of an organization to have professional tax preparers to be in charge of the tax organization. There are instances where a small business’ taxes are very complex because of the numerous billable services, and inexperienced business owners with no accounting background are confused to no end. A professional tax preparer will be able to adequately prepare each small business tax return with accuracy. Yet several small business owners prefer to deal with the expertise of Certified Public Accountants (CPAs). A CPA can keep a business’ financial ventures in order, clearly underlining the problem areas and discrepancies. What’s more, CPAs with expertise in small business taxes are in perfect position to suggest tax credits and deductions which can lessen a business’ annual tax. By hiring professionals, a small business’ tax return can be prepared in a short period of time, giving allowances to make adjustments if there are inconsistencies with the record.
Yet there are business owners who are uncomfortable to having other people conduct their monetary business for them, and prefer to prepare the taxes on their own. At such, it is a wise move for business owners to enlist themselves to basic tax courses. These lessons are available at local colleges and tax preparation businesses. Once business owners are equipped with the technical knowhow of the most common tax regulations and laws, and how to properly file their reports, then they can take advantage of the tax preparation course for a lifetime.
Another option for business owners would be to obtain tax software programs, which enable them to prepare their taxes with ease and speed. Tax software’s are user friendly and offer step-by-step procedures for easy and hassle-free tax preparation. The softwares are usually free and offer pertinent forms, but small business owners may have to purchase the software since the small business forms are only available in paid versions. Software programs also enable small business taxes to be transmitted through the internet to be sent to its proper taxing agency.
Overall, business owners can prepare their own tax returns or ask for the help of CPAs and other professional tax preparers. They can also enroll in tax preparing courses and invest in tax software programs. Whatever the case, business owners should never forget that they are eligible for several tax deductions and credits. If properly credited, a business can have thousands of dollars in savings. These deductions come in the form of allowances, health care benefits, loans, charity donations, and the likes. The IRS offers these deductions to give businesses the opportunity to keep more of their income for more financial ventures and growth in the future.
if you are an entrepreneur running your small business, you may have considered using small business tax software to make the tax season a little easier for you. Business tax software is a viable option for companies who are operating off of a tight budget. Tax software for small business programs are more time and cost efficient than preparing such forms by hand. Or, if you choose to outsource this function, it can be rather costly for a small business to hire the services of a professional accountant or a professional tax preparer. In addition, with these types of programs you can rest assured that the Internal Revenue Service accepts the results of the most popular brands without question.
Why a Small Business Owner or Entrepreneur Should Consider Finance Software for Preparing Taxes:
– It helps in providing you the opportunity to take advantage of additional tax deductions that you may not be aware of. This in turn can result in a lower rate of the taxes your business pays to the IRS.
– Simple electronic filing of your taxes – gives you peace of mind in knowing business information is encrypted and secure. Additionally, your money will reach the IRS more rapidly than it would through snail mail. If your business is entitled to a refund of any sort, the IRS will be able to process your claim and send your refund quickly. Typically, a company who uses electronic filing will receive their refund approximately 4 to 6 weeks faster than other businesses that opt to send taxes in the mail.
– Tax software for small businesses has a much lower chance of computing mathematical errors which mitigates the risk of human error. Most business tax software programs are not perfect, but in almost all cases, they are correct in their computations (this is providing that you’ve answered the questions correctly and input the right information). The manufacturers of tax programs are covered by liability insurance, so that if a mistake occurs, the manufacturer and its clients are covered monetarily. This is the primary reason why so many tax programs place safeguards in the design of their programs.
– If you are unsure of the reliability of tax software for small business programs, then you can check the deductions it finds against the accepted deductions listed on the IRS’s website (http://www.irs.gov). These tax programs are especially efficient at simplifying this information. The software you purchase should be the most recent edition available, so you can ensure that it complies with current tax laws.
If you choose to purchase small business tax software for your business, as always it’s important to research and ask questions before investing your money. However, when you do add this software to your business you can expect to experience numerous benefits. The most important of these benefits being saving you money and saving you time affording you the ability to focus on operating your business.
SME’s and Small Business Tax, making it simple.
A recent survey of 400 small to medium sized businesses carried out by ‘Inspirem’ highlighted that 40 per cent are not confident’ that their expenses allow them to claim for the valuable tax reductions that they are entitled to. It’s no surprise really as small business tax can be so confusing. So where do you start? Small Business Tax can be split in Limited company Tax – the tax your company pays and Personal Tax as you’re taking money from your business.
What Limited Company Tax must I pay?
If your trading as a limited company, firstly you need to pay Corporation Tax. Currently in April 2011 this is 20% for all companies with profits under £300,000. So say for example your business sends an invoice to your client for £100,000 excluding VAT over the year and £20,000 of that was your expenses and salary than you’ll need to pay 20% on your remaining profit of £80,000. This will be due nine months and one day after the year end of your small business. Employer’s National Insurance Contributions Your small business will be liable to pay 13.8% on any salary you’re paid over £136.01. It’s that simple there are no changes of rates at different level of salaries, so this is very black and white for your small business.
VAT (Value Added Tax)
Most businesses are likely to register for VAT, which is currently at 20% in 2011. This will be added to the end of all of your invoices, and this money is given straight to HM Revenue and Customs. If your taxable income is less than £150,000 in your financial year, you’ll have the option of registering for the Flat Rate VAT scheme, where you have to repay less VAT. Most small businesses are registered on the Flat Rate VAT scheme, your accountant will be able to discuss this is more detail for you. What Personal Tax do I have to pay?
This isn’t that simple unfortunately and the majority of business owners end up very confused as you are both the owner taking dividends and an employee taking a salary. It’s important to remember income tax is based on the ‘Fiscal tax year’ so 6th April to 5th April not your small business financial year. It purely relates to personal worldwide tax income. Your personal allowance in 2011 is £7,475 anything you earn up to £35,000 is taxed at 20% and then £35,000 to £150,000 is taxed at 40% and 50% after £150,000. In addition when you reach £100,000 your personal allowance is reduced by £1 for every £2 of your income till it is reduced to zero at £114,950 so after this point you will be taxed 60%. This is why it is important to draw dividends from your small business to ensure you’re operating as tax efficient has possible, you will not have to pay any income tax on dividends up to the value of £35,000 and anything above this you will need to pay 25% which is significantly lower than Income Tax.
Lastly you need to pay your National Insurance (NI) contributions. You’re liable for this tax on anything you earn above £139.01 a week at 12% until you reach £817 per week and then this drops to 2%. All in all tax really doesn’t have to be complicated and with a specialist accountant in small business tax it will be come much easier and will make sure you make advantage of every benefit you may be entitled to.