The Best Way for Small Businesses to Lower Their Tax Liabilities
All small enterprises are impacted by tax liabilities. Tax liabilities for small businesses are affected by several variables, including business entity type, payment deadlines, and the particular taxes owed.
Small firms can lower their tax obligations by putting tax-saving measures into place. Almost every company organization has strategies to reduce costs for both you and your staff. Learn more about tax liability reduction strategies for small business owners by reading on.
What Are the Tax Liabilities of a Small Business?
Your small business tax responsibility is the tax due on your business income. And your federal and state tax obligations are based on the type of business entity you have.
According to their legal status, all enterprises must pay taxes at the federal level. Some federal payments necessitate yearly payments. If your small business employs people, you could also need to pay federal taxes. The federal tax burden, however, is borne by the shareholder of an S Corporation. Or the partner in a partnership for businesses that operate as pass-through corporations. State regulations for business entities can vary.
Your state tax obligations may include employment and income taxes. Your tax obligation for state taxes will also be determined by your business entity. You might anticipate paying various taxes for enterprises that employ people.
You should anticipate paying the following business state taxes, though they may vary by state:
- Insurance for temporary disability
- Tax on unemployment benefits
- Insurance for workers’ compensation
What Kinds of Business Taxes Are There?
Small firms are subject to numerous business taxes:
- Occupational tax
- A projected tax
- Excise duty
- Revenue tax
- Use tax and sales tax
- Tax on self-employment
Employers who have employees are subject to employment taxes. Four employment taxes exist:
- The deduction of federal income tax
- Tax on federal unemployment benefits (FUTA)
- State tax on unemployment benefits (SUI)
Social Security and Medicare Taxes
Another business tax on income not subject to tax withholding is estimated taxes. If you don’t withhold taxes voluntarily, you can still pay estimated taxes.
Taxes are anticipated on revenue from:
Another company tax is the income tax. Except for partnerships, most business entities must pay federal income tax. Individuals who are part of a partnership will instead declare their gains and losses on their tax returns.
States likewise tax business income. This part of income tax may differ depending on the state in which your small business is located as not all states tax businesses on their income.
A business tax that impacts business owners is the property tax. Various sorts of properties are taxable in different states.
For firms headquartered in commercial real estate locations, certain states collect property tax. These taxes are known as tangible personal property taxes and are used by other states to levy property taxes:
- Business Resources
- Business automobiles
- Computer hardware
When sales taxes are not collected, states may also impose a sales and use tax on small enterprises for the use of products and services.
Taxes for Businesses Are Due When?
Depending on the type of corporate entity and when its year ends, different business taxes have varied due dates.
- C Corporations can decide when their fiscal year ends.
- For the most part, partnerships pay their business taxes during the calendar year.
- S corporations establish their due date using the calendar year.
Each corporate entity’s due dates are:
- The due date for corporations is April 15.
- The deadline for partnerships’ business tax returns is March 15.
- Taxes for S Corporations are due by March 15th.
Due dates for sole proprietorships and single-member LLCs are April 15, as these businesses are included in the form 1040 individual tax filing.
Multiple-member LLCs have the choice of paying business taxes as a corporation, partnership, or S Corporation. Depending on the entity type selected, there are three possible due dates:
- The due date for business taxes for LLCs filing as partnerships is March 15.
- Taxes for LLCs that are corporations must be paid by April 15th.
- The deadline for LLCs that are S Corporations is March 15.
There are further deadlines if projected taxes are applicable. Quarterly estimated tax payments are required on:
- April 15 from the January 1 to March 31 payout period
- April 1 to May 31 pay period, June 15
- September 15 from the June 1 to August 31 payout period
- September 1 through December 31 pay period, January 15
In reality, however, projected tax payments are credited once they are made.
How to Decrease Small Business Tax Liability in 4 Ways
There are four options for small business owners to lessen their tax burden:
- Create and fund a retirement plan
- Utilize the Qualified Business
- Income Tax Deduction
- Utilize tax credits to reduce business revenue
Tax Deductions for Use
Establishing a retirement plan is the first step in reducing taxable income. If their company includes employees, small business owners can set up a retirement plan for both themselves and their workers.
You might be able to receive additional tax benefits if you designate your retirement plan as a qualified plan.
Utilizing the Qualified Business Income Tax Deduction is the second technique to lower your taxable income. Three pass-through business organizations are eligible to deduct 20% of their qualifying business income under the qualified business income tax deduction:
- A collaboration
- A single-person business
- S corporations
This deduction can be claimed in addition to any other business tax deductions, and it is available to both single filers and married couples filing jointly. There are income restrictions on this deduction for the majority of firms.
Utilizing tax deductions is the fourth way small businesses can lower their taxes. There are other deductions besides the Qualified Business Income deduction that might lower your tax liability and benefit your small business. This exclusion applies to:
- Commercial Equipment
- Actual estate
Knowing the tax credits and deductions you are eligible for will be made easier by working with a tax expert.
Consult a Small Business Tax Specialist
You, your employers, and your small business can all benefit from knowing your tax liabilities. You should consult with tax experts. This is because determining tax due depends on several factors.
Small business owners may need to pay any taxes, but there are ways to do it. You’ll want to make sure you receive the assistance you require when you need help with small business taxes. For your small business tax requirements, contact the accountants at Your Part Time Accountant.