Grasping the Ins and Outs of Business Taxes

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Paying taxes is part of making money. As a result, it is vital to understand the tax implications of entrepreneurship, including the taxes you need to pay, the timing of payment and how to maximize business deductions. Below are some useful tips for business owners:

Keep original records: Good record keeping allows you to stay on top of your income and expenses. It also helps you avoid any problems associated with a possible audit.

Don’t forget about quarterly taxes: If you owe taxes of $1,000 or more, business owners must pay taxes four times a year. You may face penalties if you do not pay at least 90% of the taxes you owe.

Choose the appropriate business structure: Business owners can structure their business in different ways. Because different business entities dictate how much you will need to pay in taxes and how you file, it is important to choose the business entity that is best for you.

The most common options include:

Sole proprietorship: This is an unincorporated business on your own. The profits solely belong to you, as do the risk and debt.

— Partnership: This entails sharing your business with others. General partnerships, limited partnerships and joint ventures are the main types of business partnerships.

— Corporation: This is a separate legal entity owned by shareholders in which the business holds all liability and debt.

— S Corporation: This type of corporation enables profits and losses to pass through shareholders instead of the business, which prevents double taxation.

— LLC: This entity protects its members from personal liability associated with debts and legal actions from the business.

Take advantage of tax breaks: There are numerous tax credits available to businesses. Be sure to take advantage of the following deductions:

— Rent

— Insurance

— Startup costs

— Business loan interest

— Work opportunity credit (credit awarded to businesses that hire employees from specific populations that have difficulty gaining employment.)

— Disabled access credit (credit awarded to businesses that provide access to individuals with disabilities.)

— Alternative motor vehicle credit (credit awarded to businesses that drive green.)

While starting a business is an exciting experience, managing taxes can feel daunting. But understanding exactly how to navigate the tax maze can help you focus on making your business a true success.