The best way to keep your tax liability to a minimum is to be familiar with the different rules, requirements, deductions and credits that are available for your particular business. Sole proprietorships, LLC’s, partnerships and corporations all have different tax rules as well as independent contractors. Before you even start your business, you should take a look at the various tax advantages and drawbacks for each so that you can decide what business structure will work best for you. For example, those who have a corporate business face double tax- one for the corporation and then one for personal income. Independent contractors and sole proprietorship owners must pay an estimated tax on their income on a quarterly basis.
Your tax requirements tend to be as complex as your business. A sole proprietor or independent contractor who simply sells products or s service simply needs to file a basic form and claim deductions and credits. Those who have employees, lots of equipment, property and international transactions will find their tax filing process will be more complicated. Learning the basics before you start is a good way to avoid surprises and hassles down the line, and researching your tax requirements will help you to determine what kind of business you will like to operate.
Being organized, informed and keeping good records will all contribute to keeping your tax payments low. You should never wait until the last minute to prepare your taxes, and you should try and keep your paperwork organized in categories so that you don’t lose important receipts and documents that can mean tremendous savings. There is no doubt that paying taxes is a hassle, but the silver lining in the complexities of satisfying the appetite that Uncle Sam has for your money is that you can find deductions and credits. Knowing how to claim them and what elements of your business qualifies will reduce your tax rate.
The IRS maintains a good website that is loaded with information for small business owners, and many tax preparation services provide excellent resources as well. Tax preparation software for small businesses is also readily available, and good programs will help you to better understand and calculate your deductions and credits without the need for you to do a lot of research. Finally, going to an accountant who specializes in small business taxes is a great resource if you don’t want to bother with filing yourself.
But, remember that taxes are ultimately your responsibility, and you should always keep a close eye on the tools you use to prepare and file. Choosing the wrong service, software or resources can overlook many credits and other rebates. Make sure that you are taking a hands-on approach to your taxes so that you know that you are keeping your liability to a minimum. Taxes are a reality that we all must face, but the more you are aware of the process, the requirements and the savings that are available can make dealing with the IRS less stressful and time consuming.