Taxes and Business Ownership

Taxes and Business Ownership

taxes and businessThe ugly word none of us want to utter Taxes, especially business owners. You may not want to think about them but it is something you must know about if you are a business owner.

Today we are providing a summary of the briefs available for tax information that is useful for every business owners.

Tax Issues for Home Business

If you are planning to conduct a business out of your home, you should be aware that you could be eligible to take a very valuable tax deduction. This brief gives a summary of the qualification requirements.

Taxes, Licenses & Permits

In addition to Federal income taxes and employment taxes, the various states, counties, cities and municipalities have taxes, licenses and permits. Over 120 businesses and professions require licenses and/or permits locally, and the list is constantly changing for the state and for various counties, cities and municipalities. It is essential that you contact the responsible agencies covering your business location(s) to establish what requirements you must meet.

For your convenience, this brief offers a list of area phone numbers is provided for your use in determining applicable tax, license and permit requirements.

Employees vs. Independent Contractors

A key decision facing every new business is how to hire people to do work for the business. Worker classification is an important legal distinction that determines payroll tax liability and the employer responsibility to pay for the worker’s expenses, tools/equipment and insurance.

This brief offers the key factors that are considered by the IRS and the courts to decide is a worker is a company employee or an independent contractor.

Federal, State and Local Taxes & Reports

This Brief is intended to be a general guide to help you through the maze of rules and regulations you face in starting and operating a business. It does not provide complete information on all federal, state and local tax laws that may affect your particular business, but provides a general overview as a starting point. It does not cover detailed specifics because the circumstances under which individual business owners operate vary greatly and often determine what types of taxes must be paid (e.g. legal structure, exemptions, deductions, with/without employees, etc.). Instead, cited herein are federal, state and local sources and documents that you should use as guidance in meeting your tax obligations.

Sole Proprietorship Tax Procedures

IRS Publication 334 – Tax Guide for Small Business: This is the essential guide for federal taxes that apply to all businesses operating as a single member or multiple member LLC. This publication outlines the accounting methods that apply for revenue, cost of goods sold, fixed asset depreciation, deductible expenses, and inventories. A table lists all potential tax liabilities with the forms and tax filing due dates.

Tax Treatment of Business Startup Costs

When you go into what is expected to be a profit-making business, Business Start-up and Organization costs generally must be treated as capital expenditures. You can choose to deduct up to $5,000 of business Start-up costs and $5,000 of Organization costs as a current business expense. The $5,000 deduction is reduced by the amount your total Start-up or Organization cost exceeds $50,000. Start up and Organization costs above these thresholds must be amortized (deducted equally) over 180 months, beginning with the month you begin business operations.

Special rule for 2010 start-up costs. For tax years beginning in 2010, you can elect to deduct up to $10,000 of business start-up costs paid or incurred after 2009. The $10,000 deduction is reduced (but not below zero) by the amount such start-up costs exceed $60,000. Any remaining costs must be amortized.

Note: If you elect not to amortize these costs, they cannot be recovered until you either sell the business or go out of business.

IRS Small Business Resources

The IRS website has a wealth of information available for existing small business owners and for those who are considering starting their own businesses.

Small Business Taxes: The Virtual Workshop. http://www.irsvideos.gov/SmallBusinessTaxpayer/virtualworkshop

This streaming video gives an overview of the federal tax obligations of small businesses, including workshops on these important topics:

  • Tax withholdings, filings and deposits
  • Tax requirements for employees and contractors
  • Form 1040 – Schedule C tax return – profit or loss from a business
  • Home office deductions
  • Retirement plans
  • The workshops use a story format with actors and bullet point presentations to facilitate learning. The full text of each workshop can be printed for future reference.

This brief offers the links to other IRS information centers that most small business owners will need access to.

Please consult an accountant prior to making any major decisions where taxes are concerned, but educate yourself in advance so you know which questions you should be asking.

Access these briefs and more here. And if you need additional support in starting or growing your business contact a free SCORE counselor.

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