Saving Your Small Business From The Threat of Taxes
Posted on: 18 April 2016 by George Shaw
Is there any way for a small business to avoid the brunt of taxes? Here are some practical ways that might easily be overlooked by the new business owner
You know how the song goes “Let me tell you how it will be, there's one for you nineteen for me”.
It might be a bit of an exaggeration, but if you are a small business owner, it pretty much feels that way. Putting up and running a business is never a walk in the park, and even if you do have a good year, nobody is really happy come tax season. In fact, the IRS did say that they exercised increased scrutiny of small businesses starting a few years back.
Unlike big corporations that have the benefit of having deep pockets and considerable resources, small businesses typically don’t have anything to dip into in case of a bad year, and taxes aren’t really something you can “postpone” paying - you’re asking for more trouble if you do! Here are just some of the taxes the government levies from small businesses:
Income Tax - These are annual taxes on income that is imposed by federal, state, and local government.
Employment Taxes - These are taxes that any organization must pay if they employ people.
Excise Tax - These are taxes imposed on the manufacture of certain products, the use of certain equipment, products, and/or facilities, payment for certain services and other specifics.
Think of these as a general categorization for a number of other taxes that a small business has to pay, depending on its type of legal entity. Now granted that some of these, like excise taxes, can be passed on to the consumer, but even then, most tax experts recommend setting aside 10% of your initial revenue. Then as your business gets settled in and is actually starting to turn a profit, you have to set aside as much as 40%, just to be on the safe side.
Discouraging as it may seem that a huge portion of your revenue just goes to taxes, there are actually some ways where you can reduce the amount you pay. This is no loophole in the system, but rather information that is typically overlooked by small business owners because let’s face it, taxes are a complicated matter, and this is precisely what professional accountants do best!
But say you’re at a point where hiring a professional isn’t within the budget yet, but you want to make sure that you can deduct all that you can, what can you do? The first and most advisable step would be to go to http://www.irs.gov. It is surely the most reliable source of tax information online, but in case you find yourself somewhat overwhelmed by what you find there, a great summary on the subject of small business tax deductions can be found in RingSky’s infographic on How to Get Big Tax Savings from a Small Business. It’s basically a “tldr” list of the things a small business can deduct taxes from, and there are actually quite a lot:
First year costs
Retirement and insurance health plans
Seminars, Industry-related classes, and workshops
Office savings, mortgage payments, utilities
These incentive, when added up, will amount to significant savings to your business. So carefully consider if it is worth it to hire a professional to do your taxes. If it doesn’t, your only other option would be to put in effort and time into researching more about taxes. One thing is for sure however, you always want to declare your taxes accurately. There is no room for errors as you could face hefty penalties if the IRS do find any!