6 Things Small Businesses Need to Know About Taxes

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Taxes can be daunting for small business owners, but it's a fact of life and there's no way around them. When starting a business, one of the last things most people think about is taxes. The focus is usually on the excitement of the business endeavor. This is unfortunate because taxes are often the greatest expenditure of a small business. In fact, it's more significant than lease payments and marketing expenses. 

There are a lot of elements to consider when examining taxes for a small business. This includes Medicare, social security, sales and employment taxes. There are also excise taxes and property taxes. When you consider the totality of tax payments, it can become overwhelming and difficult to manage. As a small business owner, this alone can consume your thought processes. The information below sheds light on six things every small business owner needs to know about taxes

1. The IRS Has More Information Than You Know 

It's interesting how some people think the IRS doesn't have the amount of knowledge they actually possess. It's also quite surprising given the complexity of information managed by the IRS and the systems used to orchestrate all of the activities that go on within their offices. The truth of the matter is that the IRS has intuitive and high-level systems that know much more than you probably realize. For instance, if you travel for business and deduct meals by charging them to your hotel room, it's easy for the IRS to figure this out. In other words, you are not avoiding the limit on meal expense deductions because the systems used by the IRS know what happened. 

The fact that there are no secrets when it comes to the IRS is something that every small business owner should understand. Quite frankly, there probably isn't a thought that you have about taxes that another small business owner has not had. It’s the reason why an attempt to do anything other than completely comply with IRS requirements is unwise. 

2. Your Small Business Taxes Might Be Lower 

Given the daunting information already provided, it is time for some good news. There is a possibility that your business taxes might be lower than they were in the past. This is because tax rates for small businesses were reduced by the Tax Cuts and Jobs Act. This is a benefit that's beyond individual tax reductions. If you have a C Corporation, the tax rate is 21%. If you have an S Corporation, Partnership or another pass-through entity, the qualified business income deduction is 20% for those deemed eligible. 

3. There Are Many New Tax Incentives 

There are many other credits and deductions for small businesses, such as deductions for anything considered fringe benefit. This includes health insurance, medical leave, retirement plan contributions, transportation and costs for employee relocation, among others. Despite the Tax Cuts and Jobs Act, these tax incentives still exist. 

4. Most Small Businesses Hire A Tax Preparer 

If you were thinking about handling your own taxes as a small business owner, you would be in the minority because nearly 90% of small business owners pay someone to handle their taxes. This is obviously because of the complex nature of taxes, but it is also because there is a lot that a tax preparer will know that you simply may not comprehend without help

5. Business Entertainment Deductions Are No Longer A Thing 

There was a time when deducting business entertainment was a huge benefit that small business owners would boast about. While you can still deduct 50% of your expenses for food related to business, you cannot deduct entertainment. This is the case even if the entertainment is totally related to your business. 

6. Tax Preparation Activities Are Time Consuming 

Handling taxes as a small business owner isn't like handling personal taxes where you start gathering information in March, and possibly April. Instead, it's something that requires time and attention throughout the year if you expect accurate record keeping. 

Since you probably have a lot that requires your attention and focus, sometimes you need help digesting everything that's involved in taxes. Hopefully this helps you with your small business taxes.

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