Helpful Tax Tips

As a small business owner, you should make estimated tax payments on your business income every quarter. You’re expected to pay taxes if you think you’ll owe at least $1,000 on your tax bill for the year. Estimated taxes include income taxes and self-employment taxes. Income taxes include all of the taxes you owe for income you earn, including investment returns, business profits, and wages. Self employment taxes are similar to withholdings from a paycheck – you pay the equivalent of the Social Security and FICA taxes that would normally come out of a paycheck, plus the matching amount an employer would normally pay.

Aside from changing your business structure, you can reduce your business’s taxable income in a number of ways. Start by looking into tax credits, like energy efficiency credits offered in many cities and states. You can also open a retirement account. The IRS lets you put up to $57,000 in a single-participant 401(k) plan. You can also set money aside for medical costs through an health savings account (HSA). An HSA gives you three tax advantages: your contributions are made pre-tax; growth of contributions are tax-free; and withdrawals for medical expenses are tax-free. Lastly – make the most of tax deductions. For example, business travel expenses are fully deductible.

The kind of small business taxes you pay depends on the entity type of your business. You’ll also owe local, state, and federal taxes. Depending on your type of business, you may owe:

• Estimated taxes
• Excise taxes
• Income tax
• Self-employment tax
• Sales Tax
• Social Security tax
• Medicare (FICA) tax
• Real Estate tax

You could get audited if the IRS finds a discrepancy on your small business tax return. You could also be randomly chosen for an audit. The most important thing is to keep detailed records of your business finances. You also want to make sure you’ve kept your personal and business finances separate. If you face an IRS audit, you will get notified via mail. Because an audit can be a complex process, seek the advice of a tax professional.

Making charitable contributions helps your company develop employee and customer loyalty and makes a positive impact in your community. A big plus? You can also cut your tax liability. Donations of cash, products, or other assets could be deducted on your business taxes.