Even if you’re focused on front-end operations, as a business owner it benefits you to understand your tax situation.
Taxes are not the most glamorous part of owning a business, but they’re important. You should understand the basics about how your business is taxed even if you hire a professional accountant. Get started with these essential tips for businesses regarding tax deductions.
Figuring the type of business you operate
Most businesses fall into one of three categories:
Business tax deductions
Businesses are able to claim tax deductions for a wide variety of expenses, particularly expenses incurred to produce additional income. Potential business tax deductions include:
Taking advantage of tax credits
Unlike deductions, which reduce the amount of business income that is taxable, credits lower your tax. Many tax credits are tied to specific industries or types of businesses.
One of the most significant tax credits for small business owners is the Small Business Health Care Tax Credit, available for employers that:
Also, there have been some new employment tax credits introduced in the last few years related to the COVID-19 pandemic. You may want to talk to your tax preparer about whether any of these apply to your situation.
Keep in mind that tax credits, as with other tax policies, might change.
As a business owner, your tax obligation is to pay taxes as you earn income. For that reason, if taxes aren’t being withheld from salaries or other payments, you need to pay estimated tax payments each quarter of the calendar year.
Figuring out what you owe each quarter requires looking at your expected adjusted gross income, taxable income, taxes, deductions and credits for the year. Each business and every situation is unique, so it’s important to consult a tax advisor for help in calculating the amount.
Paying state and local taxes
In addition to federal taxes, businesses need to pay state and local taxes, including income and employment taxes. Look up your state’s business-tax requirements.
Hiring a tax professional
It’s beneficial to hire an accountant, even if you feel your business is not very complicated. Paying taxes, identifying deductions and keeping up to date with current business tax law are serious responsibilities, and a tax professional can be a tremendous help.