Getting Your Taxes Right When You Start Your Business
About half of the countries in the world survive thanks to taxation, as it forms 80% of their revenue and more than 50% for the remaining countries. It is an essential component you cannot escape, provided you operate a business in these countries. We hear of tax exemptions, but that happens in specific cases you must qualify for.
Not filing your taxes when due or filing the wrong amount will put your business on the wrong side of the law. Fortunately, you don’t need to be an accounting professional to understand simple bookkeeping. We even have software to help individuals calculate their taxes without hiring experts to do the same.
Getting your taxes right from the start of your business is possible, and we will show you how. This guide will review the essential things to remember and execute as you launch your company onto the scene. Notwithstanding, specific rules may apply depending on your business type.
How to Prepare for Taxes When Starting Your Business
Tax laws change often as governments seek new ways to generate revenue. Even the World Bank acknowledges that countries with less than 15% of their GDP in taxes must increase that percentage. This move is necessary for them to meet the country’s citizens’ and businesses needs.
Your company cannot exist without filing taxes. Sooner or later, the IRS or any other regulatory body will come for them, and trust us, you don’t want a court case.
We’ve identified a few things you can do to gain an advantage regarding business taxes. They include the following:
Select Your Business Structure
Which taxes to pay and which ones to ignore boil down to your business structure. However, you should not confuse structure with the niche of your business. To illustrate, an insurance company can have the same structure as an online live casino gaming operator. This means that the former would issue taxes, similar to legitimate gaming providers calculating and recording their issued bonuses and jackpots. In fact, many countries require citizens to pay their winnings into taxes, which is the other end of the spectrum that concerns the customer, as compared to the business itself.
Common business structures include the following:
- Limited liability company, LLC
- Sole proprietorship
- S Corporation
Once you select the structure, you can research taxes for it. That will include which federal, state, and local taxes to pay and how to pay them. Alternatively, you can study taxes for different structures and pick one that favors you the most.
Prepare for Your First Annual Income Tax Returns
All businesses, except partnerships, are expected to file income tax returns annually. You’ll learn which forms to use and whether to include estimated quarterly tax payments in your business structure.
Partnerships use a different approach, passing through the partners, who will report their income or loss on their tax returns. Nevertheless, filing an Annual Income Return Form 1065 may be required.
Social Security Number or an Employer Identification Number?
Which is right for your company’s taxes? Here’s what you need to know about these numbers
- Social Identification Number: You can use it if you are self-employed or operate a sole proprietorship. It is also viable if you run a single-owner LLC.
- Employment Identification Number: If your business has employees, you should use this number. Make provisions for obtaining your EIN immediately after registering your business.
Self-employment Vs. Employment Taxes
Here is what you’ll be responsible for if you have employees:
- Their social security
- Their medicare taxes
- The federal unemployment tax
- The federal income tax withholding
Your reports must include taxes you deposit, wagers, tips, and compensations you pay your employees individually. Conversely, you are responsible for your social security, Medicare, and income taxes if you are self-employed.
Are Your Properties Taxable?
Running a company often involves the use of vehicles and buildings. These assets may be subject to taxation, and the laws are best found in the state government directory (website).
Certain products require the payment of excise tax if you are the manufacturer. Again, you can learn more from the state government directory (website).
Hire a Professional
You do not have to wait until your business has tax conflicts before finding someone to mitigate them. Also, tax software can only get you so far in filing your tax returns.
There are many tax professionals. However, picking one depends on your business’s needs at that moment. For example, a tax attorney might be better for dispute resolution than a certified public accountant during dispute resolution.
Keep Records of Transactions
The good old practice of bookkeeping remains essential, whether you have a tax professional or not. Keep records of your transactions, either in hard copy or soft copy. We recommend having both.
Information you should record includes expenses, receipts, invoices, etc. Your company might be entitled to deductions, and this information can help you claim them.
Running a business is challenging. One constant thing is filing tax returns with the authorities, even for those operating partnerships. The business structure determines which taxes you pay and how you pay them.
Do adequate research before you start your business. Also, open separate bank accounts once you launch them. Separating your accounts from company accounts is essential to correctly completing your taxes.