As an Entrepreneur or Small Business Owner, your taxes are a direct co-relation to saving money in your business especially because (when not done properly) it can be one of the most expensive costs to running your business. I’m sure you would much rather take your hard-earned tax dollars and invest it in other areas that will help you to “grow” your business.
The goal of my blog is to help the unsure Entrepreneur so in today’s post I am sharing 8 things every Entrepreneur should know about taxes.
- Your business structure, whether a DBA (Doing Business As a/k/a Sole Proprietorship), LLC, S Corp, C Corp, etc., will determine the tax rate you will pay because not all business structures are taxed the same. As a matter of fact, this is why it is very important to consult with a business tax specialist who can help you determine which structure would benefit you in the greatest way. You must understand that what’s right for one business, isn’t necessarily right for another.
- Your business structure also determines which forms you are required to file. This is one way that obtaining an EIN through the IRS can help you because the confirmation letter you receive after you obtain your EIN will inform you on what IRS forms you are required to file.
- If you are an LLC that has “elected to be taxed as a Corp” with the IRS, this does not automatically mean that you will be taxed as a Corp with the State your business is registered in. Remember, if you registered as an LLC with the State, your business will be expected to file a State tax return using forms that relate to being an LLC not a Corp. Do not confuse the two.
- If you are planning to register your business as an LLC, you have the option in terms of which State you register in because some states are less expensive than others and some states have very minimal business taxes that will be owed and in some cases, zero taxes will be owed. (But be advised that registering your LLC in a State that you “don’t” officially do business in may also mean that you are required to register as a Foreign LLC in the State your business is physically located in.)
- Do not just simply rely on your business tax professional (or DIY tax software) to keep you abreast of everything related to your small business and taxes. I’m not saying you need to become an expert with small business and taxes because trying to make sense of it all can sometimes feel overwhelming but you should at least consider subscribing to email news alerts from the IRS. Staying in tune will at least help you learn about information that you may want to discuss further with your tax professional. [Here is a Link to sign up with their enews alerts.]
- Remember that the IRS as well as the State your business is registered in, holds you fully accountable for all of your timely filings and it is your responsibility to keep abreast of all the due dates of the various tax filings that may apply to you. So learn your due dates and place them into your calendar along with a 30 day ahead reminder so you will not have to worry about missing a due date for a payment or specific tax return.
- Although keeping up with the bookkeeping and accounting for your business is often a task most Entrepreneurs don’t want to deal with, try to keep it up as close to 100% accurate as possible because this will seve multiple purposes. For one thing accurate accounting and bookkeeping will enable you to run Profit & Loss statements and other financial statements whenever needed (and are always requested in an Audit). It will also prove to the IRS that you are treating your business like a business and are not simply saving receipts. It will also help you to capture every expense so you don’t miss out on important business tax deductions (because so many Entrepreneurs often do). It will also make tax time so muche easierand give you peace of mind. (And if handling this is really that painful or time consuming, outsource it.)
- You cannot treat yourself as an Independent Contractor to your own business adn this is often misunderstood and confused by so many entrepreneurs and small business owners. If you are Unincorporated, you pay yourself with what is called an “owner’s draw” and if you are Incorporated, you must pay yourself as an Employee and issue yourself a W-2 just as if you were working for another company.