If you’re a new small business owner, you may be wondering what the phrase “doing your taxes” entails. Paying business taxes and filing returns can be quite confusing, especially when you’re doing it for the first time.
Here are a few commonly asked small business tax questions answered.
How Frequently Do I Need to Pay Taxes?
Businesses are required to file an annual tax return. Most businesses pay federal taxes on income earned during a twelve-month period. On the other hand, partnerships don’t have to pay income taxes but must file an annual information return reporting their share of profits or losses.
It’s imperative that you fully understand your local, state, and federal tax requirements before making any payments. This will ensure accuracy during the tax filing process and prevent missed deadlines. The type, amount, and method of tax payments depend on your business structure. Since the federal income tax system adopts a pay-as-you-go approach, you can expect quarterly tax payments that will compensate for your tax bill during your annual tax return.
What Expenses Are Included in the Deductions?
Many small business owners struggle to conclude their deductible expenses when filing taxes. This can be tricky, as some personal and business expenses may overlap. The good news is that most business expenses are deductible, as long as you can prove they were made for crucial and reasonable business purposes.
Common deductible business expenses include those related to the equipment, transportation, office supplies, and technology used by employees. You may also be able to include business-related meals, travel, and purchases in these expenses. However, it’s best to reach out to a professional instead of assuming things on your own to avoid penalties.
How Should I Classify My Employees?
Another aspect to keep in mind when paying taxes is how you classify your employees. The IRS has specific guidelines on how small business employees need to be classified, depending on the business relationship you have with them. You need to stick to these rules when determining if a worker is a permanent employee or an independent contractor.
Misclassifying workers can result in hefty fines and tax penalties. Working with a certified tax coach can help you evade these outcomes. Nidhi Jain is a certified public accountant and tax coach who provides comprehensive services for personal and business tax filing in Bay Area.
If you’re looking for a tax consultant in San Jose for your business, reach out to her today!