Tax season is bitter-sweet for an entrepreneur. On one hand, if you’ve kept meticulous records and stayed abreast of new laws you are ahead of the curve. On the other, if Accounting and Bookkeeping are not your forte (and you haven’t hired someone to complete these tasks) you will dread April 15 like the bubonic plague. Nonetheless, the idea is to keep what you’ve worked hard for and ensure Uncle Sam is not getting more than his due. Some basics to keep you on track this tax season:
1. Writing off Deductions: The US has two separate and unequal tax systems – one for employees and the other for business owners. Employees have income tax withheld from a paycheck and can take relatively few deductions. Business owners operate in a totally different playing field. The vast majority of business owners have no taxes withheld from their earnings and take advantage of tons of tax deductions – unavailable to employees (i.e. home based businesses deduct a portion of rent or mortgage, utilities, maintenance, home office expenses, car expenses for business, office furniture and equipment, etc.) The idea is to know what is available to you – the IRS won’t complain if you don’t take what’s yours.
The key is – you only pay taxes on your business profits – not on your ‘gross business income.’ One of the best resources for accurate information is Nolo.com – it was a life saver in the early stages of building my businesses. Nolo.com is a great reference tool as your business grows. Home Business Tax Deductions is a must have book for all startups and entrepreneurs.
2. Quarterly Estimated Taxes: Stay on top of this area because failure to do so can flow issues as well as IRS penalties. To learn more about Estimated Taxes for 2010 view the IRS Tax Withholding and Estimated Tax Publication.
3. Sales Taxes: If your company sells a product or service that is subject to sales tax, you must register with your state’s tax department and track taxable and nontaxable sales. Having what is considered a “presence” in a state is the criteria used by the IRS to determine whether or not you are liable for paying state sales tax. A “presence” in another state does not necessarily mean that you have a physical brick and mortar location in that state. But if you have an office, warehouse, or employees working for you in another state, the IRS may consider you to have a presence in that state. It is important to know your sales tax responsibility for every state in which you do business. Learn more about your state’s sales tax requirements.
4. Keep Good Records: Most tax professionals insist that entrepreneurs keep tax documents for at least seven years. This will ultimately save you money in the long run. Ensure that you keep a accurate and detailed paper trail of all important business documents.
5. Know Important Tax Dates: Most small businesses are familiar with the most important day of the year – April 15. However there are several others that are just as important to keep tabs on:
Most annual returns are due April 15 for unincorporated companies and S corporations. C corporations must file annual corporate returns within two-and-a-half months after the close of their fiscal year. Estimated taxes are due four times a year: April 15, June 15, September 15, and January 15. Sales taxes are due quarterly or monthly, depending on the rules in your state. Lastly, employee taxes are due weekly, monthly or quarterly.
– IRS Self-Employment Tax Center
– Nolo Legal Solutions for your Small Business: Top Tax Deductions for your Small Business
– 2010 Tax Changes for Small Businesses
– IRS Publications and Forms for the Self-Employed
– Sales Taxes in the United States
– The IRS Tax Calendar for Small Businesses and the Self-Employed
– Starting a Business – IRS Checklist
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