Introduction
As a business owner, one of the most important tasks is handling taxes. Taxes are not the most pleasant aspect of running a business, but they are necessary. They can be quite complicated, especially for small businesses that lack an accounting department. Knowing exactly how to handle taxes can help business owners avoid penalties and interest charges. In this article, we will explore the ways businesses should handle their taxes.
1. Understand Which Taxes Apply to Your Business
Understanding which taxes apply to your business is crucial for proper tax handling. Federal taxes such as income tax, social security and Medicare, excise tax, and self-employment tax apply to most businesses. Depending on the business type and location, state taxes, for example, sales tax, property tax, and income tax, can also apply.
New businesses must ensure they are registered with the Internal Revenue Service (IRS) to avoid IRS penalties. Business owners need to have EIN or Employer Identification Number to identify the business for tax purposes.
2. Keep Accurate and Complete Records
Keeping accurate and complete financial records is vital for tax filing and compliance. The records can help businesses justify deductions and credits applicable to the business. Record keeping can also help businesses in budgeting, forecasting, and decision making. Good record-keeping practices can help businesses avoid tax trouble and scrutiny from the IRS during an audit.
There are different software platforms that businesses can use to maintain their financial records. The system should have an easy-to-use interface for inputting income and expenses. Keeping records digitally can make it easier to file taxes, and businesses can more easily track expenses and legal obligations. Making manual records might also work, but it is more time-consuming and more prone to mistakes.
3. Timely Filings and Payments
Business owners should ensure that they file tax returns promptly and on time. Late filings can incur additional penalties and interest charges. Businesses should determine their filing obligations and deadlines and ensure that they meet them. They should keep in mind that tax returns rely on the business type, location, and other factors. Filing taxes electronically offers an easier and more efficient way of complying with tax obligations.
Businesses should keep track of expected tax payments since underestimating estimated tax obligations can result in unnecessary fees and penalties. Reporting and paying the estimated taxes promptly should be viewed as an essential element of tax planning.
4. Enlist Accounting Professionals
Enlisting the services of qualified accounting experts can improve the handling of business taxes. Accounting professionals can help businesses navigate through complex tax codes and regulations and help owners avoid penalties and fees.
The experts help businesses identify applicable tax credits and income tax deductions and ensure compliance with tax regulations. Accounting professionals have the knowledge and experience needed to keep accurate records, prepare financial statements, balance books, and file taxes.
5. Take Advantage of Tax Credits and Deductions
Businesses should consider taking advantage of tax credits and deductions since they can significantly reduce tax obligations. Tax credits come in different forms, including research and development tax credits, small business health care tax credit, and energy-saving tax credits.
Deductions come in various forms, including the business expenses, home office deductions, and business use of a personal vehicle deduction. Businesses should remain updated with available tax credits and deductions and consult with accounting professionals to identify the tax credits and deductions that apply to their business.
6. Stay Updated
The tax code and regulatory laws keep changing, and businesses should ensure that they stay updated. Business owners can consult with accounting professionals to keep up-to-date on tax codes and regulations that apply to their business.
Business owners should also read and pay attention to updates and changes to tax laws issued by the government. They can do that by regularly reading publications from IRS and state tax authorities. Updated information makes tax planning more effective, helps businesses avoid penalties, and ensures that they remain compliant with tax regulations.
Conclusion
Business taxes require adequate attention to detail, planning, and careful record-keeping. Business owners must ensure that they have a deep understanding of applicable taxes and their filing obligations. Businesses should keep accurate records, enlist accounting professionals, file taxes on time, and take advantage of available tax credits and deductions.
The government remains dedicated to helping business owners by continuously updating tax regulations. The IRS and state tax authorities provide different avenues to keep businesses updated on new tax regulations. By following the guidelines above and keeping up to date, business owners should find it much easier to handle their taxes and avoid unnecessary penalties, fees, and audits.
Businesses, no matter the size, are all subject to federal taxation. Depending on the size of the company, whether it be small businesses or mid-to-large caps, the IRS will demand the appropriate filing of various forms.
All forms associated with business taxation can be found at the IRS website. The IRS website also provides detailed instructions on how to file such forms, as well as a section which contains all IRS forms download. At the IRS website a user will be able to download the actual forms and observe how they correlate to a business’s needs.
The form and size of the business in question will determine which taxes are levied, the appropriate amount owed, and the applicable IRS form. The IRS subdivides the types of business taxes into four distinct groups:Income tax, Self-Employment tax, Employment taxes, and Excise taxes. Each class of taxation requires the filling of different forms and is documented in detail at the IRS website.
In addition to the varying forms and levies, the IRS has also categorized businesses into:sole proprietorship, partnerships, corporations, S corporations (pass federal tax responsibilities to shareholders), and limited liability companies. Depending on the make-up of the LLC, the company will file an individual tax return, a corporation tax return, or a partnership tax return.
For clarity’s sake we will divide the different types of taxes and list the appropriate forms used for each type of business.
Income Tax-All businesses except partnerships (files an information return) are mandated by federal law to file an income tax return. The form used depends on the type of business in question. Essentially making it a “pay-as-you-go tax”, the federal income tax must be paid as the business earns or receives income during the year. Listed below are the types of businesses and the appropriate forms used to file income tax.
Sole Proprietorship (according to the IRS website) –
1040 US individual tax return (specifically Schedule C)
Form 1040 (Profit or loss from Business) or Schedule C-EZ
Form 1040-Net Profit from business
Corporations (according to the IRS website) –
1120, U.S. Corporation Income Tax Return (IRS forms download available at IRS website)
S Corporation (according to the IRS website) –
1120S
1120 Sch-K-1 (IRS forms download available at IRS website)
Self-Employment Tax-A tax levied for individuals who work for themselves. The Self-Employment tax is paid for the use of social security and Medicare. This form of tax is only relevant for a sole proprietorship or some forms of limited liability companies. An individual pays the Self-Employment tax using the 1040 form under schedule SE. The individual will owe this tax if he/she meets one of the following requirements.
If net earnings from self-employment exceed $400.
If work was done for a church or church-controlled organization that elected a social security or Medicare exemption.
An individual is subject to the SE tax if he/she received $108.28 or more in wages from the church or affiliated organization.
Employment Taxes-If a company has employees they are responsible for certain tax responsibilities which must be paid and filed appropriately. Employment taxes include:social security and Medicare taxes, Federal income tax withholding, and Federal unemployment tax.
Partnerships (according to the IRS website)-
Form 941, Employer’s Quarterly Federal Tax Return
Form 943, Employer’s Annual Federal Tax Return (for agricultural employees)
Form 940, Employer’s Annual Federal Unemployment Tax Return
Form 8109-B, Federal Tax Deposit Coupon
Individual partners in a partnership must file form 1040 Individual Income Tax Return Schedule E, Supplemental Income and Loss (All IRS forms download available at IRS website)
Corporations (according to the IRS website) –
1120-W Estimated Tax for Corporations
Form 941, Employer’s Quarterly Federal Tax Return
Form 943, Employer’s Annual Federal Tax Return (for agricultural employees)
Form 940, Employer’s Annual Federal Unemployment Tax Return
Form 8109-B, Federal Tax Deposit Coupon (All IRS forms download available at IRS website)
S Corporations –
Form 941
Form 943
Form 940
Form 8109-B (IRS forms download available at IRS website)
Excise Taxes-The following forms are used for excise taxes and apply to certain types of corporations depending the manufacturing, sale, equipment used, and payment received of certain products.
Form 720 (Quarterly Federal Excise Tax Return) consists of broad categories of taxes:environmental taxes, air transportation and communication taxes, fuel taxes, tax on the sale of heavy trucks, trailers, or tractors, and manufacturers taxes on the sale and use of various articles.
Form 2290 (Heavy Highway Vehicle Use Tax) -Tax applied to businesses that use heavy trucks, buses, or trailers on public highways. The tax applies to vehicles which have a gross weight of 55,000 lbs or over.
Form 730 (Monthly Tax Return for Wagers)-applies to businesses which accept wagers or conduct a wagering lottery.
Form 11-C (Occupational Tax and Registration Return for Wagering)-taxes the use of various excise programs such as motor fuel.
