Tax Rules Your Small Business Must Follow
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You might assume that, being a small business, the tax authority has better things to do that hassle you over your tax payments. However, unfortunately, that’s not the case. The authority is constantly vigilant for SMEs trying to cut their tax expenses because it wants to increase its take.
The cost of preparing tax returns is, of course, enormous, and a massive drag on economic output. However, it is something that the state insists on.
So what tax rules does your business need to follow? Let’s take a look.
Rule 1: Use Deductions
When you first encounter the word “deduction” it sounds a little technical. But the concept is actually easy to understand.
A deduction is an amount that you can subtract from your taxable income so you pay less tax.
There are all sorts of permitted deductions. For example, you can deduct things like vehicle costs, labor costs, supplies, equipment and practically anything else you need to run your business.
Always search for as many deductions you can find. Many businesses are surprised to discover what they can deduct, things like depreciation on buildings and interest payments on credit.
You may even be able to apply for tax credits. This is where the government will actually pay you the value of your tax, up to a certain amount.
Rule 2: Find Out If You’re Paying The Right Amount Of Tax
The amount of tax corporations pay varies considerably. If you’re an SME, you won’t be able to conduct the type of mass tax avoidance that bigger companies, like Amazon, practice all the time. However, you may be able to claw back money elsewhere.
Always work with an accountant trained in corporate tax. They can scour your accounts, looking for opportunities to save.
Furthermore, the premier duty drawback services can help firms that import from overseas and have to navigate the complex customs process. These savings can be significant over time.
Rule 3: Deduct Your Startup Costs
The government wants the economy to be strong, so it allows startups to deduct many of their expenses from their initial operating revenues. You can usually deduct large dollar amounts in different categories, depending on the business you’re setting up.
Most tax software includes this helpful relief. Over time, you may be able to write off as much as $50,000 worth of expenses within the first couple of years, reducing the government’s tax take.
Set up costs for real estate, office supplies, business cards and assets, and even hiring accountants are all included. There are also specific tax breaks for training employees, and advertising to clients.
Rule 4: Pay Taxes Quarterly
If you think that you will owe taxes of more than $1,000, you’ll have to start reporting to the tax authority quarterly. This is just one of their rules and there’s not much you can do about it.
You should get help to estimate your tax payments. Usually, you can use your previous year’s tax return as a guide. If you don’t have that, you’ll want to work with an accountant.
Rule 5: Pay All The Taxes You Owe
Business owners have to pay a variety of taxes. These include:
Self-employment tax
Payroll tax
Excise tax
Sales tax
Property tax
Self-employment tax is like an income tax for people who run their own businesses. You’ll usually pay a basic rate, though there may be variations depending on where you live.
Payroll tax is a tax that you pay on behalf of your employees (instead of leaving them to pay it themselves). You’ll need to pay all applicable taxes on their behalf. This could include income taxes, insurance contributions and any other mandatory deductions.
Excise taxes are additional taxes levied on certain goods, like alcohol. You don’t pay these directly. Instead, you include them in the price that you charge consumers and then pass the money over to the authorities.
Property taxes are only levied on businesses that own commercial property. If you work from home, you won’t have to pay these.
Lastly, sales taxes are similar to excise taxes. There is no such thing as a federal sales tax. However, there are local state sales taxes on goods. Again, you’ll need to add the cost of these to the price of the goods you charge to ensure that you can maintain your margins.
Wrapping Up
When it comes to taxes, don’t try flying solo. Always go to professionals for help who can ensure that you’re on the right track.