Business taxes can be a complex topic to navigate. To stay informed on your choices, it’s important to become familiar with potential tax traps so you can identify them early and avoid them.
Your business structure determines which federal taxes you owe and how you must pay them. Check with the IRS to learn more about which taxes are owed by specific categories of business.
What are the Different Types of Taxes?
Taxes come in many forms, and understanding how they impact your business can help keep you organized financially. Essentially, taxes fall under three main categories: taxes on what you earn; taxes on what you buy; and taxes on what you own.
Your business structure and operating methods determine which taxes you owe. Some must be paid annually, while others are due annually or quarterly.
One of the most influential taxes businesses pay is sales tax, which is levied on retail sales of goods and services. When implemented properly, sales taxes tend to have less distorting effects on production and consumption choices than other taxes such as income or capital.
What Are the Benefits of Using a CPA?
By hiring a CPA to prepare your taxes, you can guarantee that you understand and comprehend the tax laws applicable to your business. Furthermore, having someone on board who understands taxes helps avoid costly audits from the IRS as well as penalties from them.
One of the greatest advantages to hiring a CPA is their ability to stay abreast of any modifications to the tax code. These could be due to new legislation or other factors, and your CPA can determine if these adjustments will impact how your taxes are calculated.
They can assist you in deciding the type of accounting best suited for your business. This can be a difficult decision for many small business owners, as they may not know which method is suitable for their company.
Preparing your taxes with a professional provides peace of mind and helps guarantee that your business is secure and ready for growth in the future. Furthermore, CPAs provide general financial guidance throughout the year.
How Can a CPA Help My Business?
CPAs possess in-depth expertise in business financial management, helping your company remain compliant with tax laws and maximize returns. Furthermore, CPAs can create and manage budgets to keep your company on track for success.
For instance, if your employees aren’t paid correctly or you owe too much in taxes, your CPA can help make sure everything’s on track. They’ll also guarantee all payroll taxes and insurance withholdings are deducted promptly.
Another way a CPA can assist your business is by conducting comprehensive audits of its financial statements. These audits are mandated by the Securities and Exchange Commission for public companies, as well as lenders and investors.
Finally, a CPA can assist your business in avoiding fraudulence by assessing its current bookkeeping system to detect any flaws. For instance, if you haven’t updated your accounting software in years, they can suggest finding one that works well for your company and is user friendly.
How Can I Reduce My Taxes?
One of the most crucial actions you can take as a business owner is to minimize taxes. Doing this allows you to keep more of your hard-earned cash in your pocket or, better yet, reinvest it back into your company.
The IRS provides business owners with numerous tax savings opportunities, such as deductions, credits and more.
Deductions are an excellent way to reduce your taxable income and keep more of what you earn. Unfortunately, they’re not as efficient as credits when it comes to lowering your tax liability.
Tax credits on the other hand provide dollar-for-dollar reductions in your tax liability.
You can reduce your taxable income by changing to a pass-through entity such as a sole proprietorship, partnership or LLC. Doing this allows you to claim the business income and deductions on personal taxes.