Starting a new business is equal parts exhilarating and exhausting. With so much to worry about and put together it is easy to assume the IRS isn’t paying a lot of attention to a brand new small business. This is a dangerous assumption and couldn’t be farther from the truth. It is imperative that you take steps from the beginning to set your business up properly in order to maximize your tax deductions and limit your liability. Here are four things every new business owner needs to know about taxes:
- Your Business Type Affects Your Taxes
Many people mistakenly believe that all small businesses are taxed the same. In reality it is your legal entity that affects your tax burden. There are many different types of legal entities, each with their own limitations and benefits. S corporations, for example, allow small business owners the ability to pay taxes at the corporate shareholder level, rather than being taxed at the higher corporate tax rate. However, S Corporations also limit you to no more than 100 shareholders. C corporations, on the other hand, are able to deduct more expenses and have hundreds of shareholders, but are taxed at a higher level. It is important to do your research and work with your accountant to determine which legal entity is best for your small business.
- There Are More Deductions Available For Your Business Than You Might Think
Small business owners are constantly searching for ways to stretch their resources in order to meet their financial needs. Tax deductions are available to help you maximize your company’s profits and minimize the amount you have to pay in taxes.
You might not realize that you can deduct business expenses that are deemed both necessary and ordinary. Some of the most common business deductions include supplies, rent, equipment, and furniture. You can also deduct the costs you incur when providing healthcare benefits to your employees.
- You Can Deduct Startup Expenses
Another of the four things every new business owner needs to know about taxes is that you can deduct the costs associated with starting your business. The startup costs you are able to deduct vary some from industry to industry, but can include market research, training employees, trade shows, seminars, and advertising costs.
- Estimated Payments Are Required
The final of the four things every new business owner needs to know about taxes is that all self-employed people are required to make estimated quarterly tax payments throughout the year. And as the founder of a startup business you are classified as self-employed. While you are excused from making estimated tax payments in your first year of operation, you will need to make quarterly payments in the following years. Your tax payment will also include the self-employment tax, which is comprised of Medicare and Social Security taxes.