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Use tax deductions to put more money in your pocket

Use tax deductions to put more money in your pocket

Smart organization

Use our tax categories, or set up your own, so that your business expenses are sorted automatically and ready to use at tax time.

Save receipts with a snap

Take a photo of your receipts and QuickBooks will automatically match and categorize them for you.
Run an expense report to review spending trends

Accountant assist

You can view your sales tax information any time with the Sales Tax Liability Report. This on-demand report will keep you up-to-date on your taxable and nontaxable sales, all broken down by tax agency.

Plan quarterly taxes

Avoid year-end surprises with our automatic quarterly tax calculations that will let you know how much money to set aside.
Run reports to easily see who owes you money

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Small business tax deductions: What to claim and how to claim it

By Erin Osterhaus
If tax season inspires a sense of dread, don’t worry, you’re not alone. But when you’re self-employed or a small business owner, filing your income taxes can be much more complicated — and stressful. You want to ensure you only pay as much in business taxes as is absolutely necessary, but you also want to make sure you do everything properly to avoid an audit. After all, you need as much capital as possible to keep your business growing.
One thing business owners can do to make taxes a little easier is understanding the differences between itemized deductions and business deductions. All taxpayers must decide whether to use the standard deduction or itemized deduction for personal expenses. Business owners must also track and post business expenses on Schedule C.
This is when tax deductions come in handy. Most people are eligible for the standard deduction on their personal tax return, which is applied to adjusted gross income and lowers your total taxable income. In certain cases, a standard deduction may not get you your maximum tax deduction.
Instead of claiming the standard deduction, it might be best to itemize your deductions. When you itemize deductions, you must list all of your eligible expenses on your tax return. While it takes more work and requires that you keep your receipts throughout the year, in the end, it might allow you to obtain a bigger tax refund or a smaller tax bill.
Here, we’ll review who should itemize their deductions, what forms you’ll need to do so, and the most common deductions you should keep in mind when you file your taxes.

Who should itemize their deductions?

First, you need to make sure that itemizing your deductions is the best route for you — and that you’re eligible to do so. As you can only choose to take the standard deduction or itemize your deductions (not both) you should only choose the itemized deduction route if you think doing so will reduce your tax bill.
That means, the cost of all your deductions should total more than the standard deduction. Here are the standard deduction amounts for the 2018 tax year. If your filing status is single, your itemized deductions must be more than $12,000. If you’re head of household, your itemized deductions would need to be more than $18,000, and if you’re married filing jointly, more than $24,000. If you think your itemized deductions will exceed those numbers, proceed.
If you’re still not sure if itemizing would actually save you money on your taxes, there are a few factors that are strong indicators it would be the smart route for you. For instance, it would likely be in your best interest if:
  • You had large out-of-pocket medical or dental expenses
  • You paid interest or taxes on your home
  • You had large employee business expenses that weren’t reimbursed
  • You had large out-of-pocket casualty or theft losses
  • You made large charitable contributions
When your itemized deductions are higher than your standard deduction, complete Schedule A and submit it with your personal tax return (Form 1040).

How to account for small business tax deductions

Here are some useful tips to account for your business expenses. First and foremost, you’ll need to keep receipts for all your business-related expenses. Some items you can itemize are fairly specific, and you must have documentation to backup your claims. Instructions regarding business expenses are available on the IRS website under Form 1040 Schedule C, and the forms you’ll need to claim each of these deductions is noted below.

Itemized deductions in detail

Here are the most common itemized deductions, and additional details on how to post these deductions to Schedule A on your personal return.
Mortgage interest
If you own the home you work in or pay a mortgage on it, there are even more deductions you can take. In fact, you can and should receive a deduction on your mortgage interest.
To do so, your mortgage lender should send you a Form 1098, outlining the deductible interest and points (charges associated with getting a home mortgage) that you’ve paid over the past year. If you’ve refinanced or bought your home in the past year, you may also be able to deduct certain mortgage points that you’ve paid.
You can also deduct personal property taxes — including real estate taxes, and state and local taxes — for the past year. However, if you itemized your deductions last year, you must count any tax refund as income. Note, however, that the Tax Cuts and Jobs Act limits the dollar amount of mortgage interest you can deduct, based on the dollar amount that you borrowed. This limitation on interest deductibility will be in place for several years.
Medical expenses
You can deduct the cost of your health insurance premiums from your taxable income if you’re self-employed or own your business. Plus, you can deduct any additional medical costs that you pay out of pocket as an itemized deduction on your personal return.
For instance, if you or a dependent spent money on medical or dental procedures in the past year and those expenses were uninsured, meaning you paid for them out of pocket, they can be entered on your personal return as an itemized deduction. However, in order for these expenses to qualify, they need to add up to approximately 7.5% of your adjusted gross income. These expenses could include things like doctor’s fees, prescription drugs, and inpatient or home care.
In the case of self-employment,if you pay your own healthcare costs, you can deduct all of your health, dental, and long-term care insurance premiums on Schedule C of your tax return. In addition, if you pay for healthcare for your spouse or dependents, those costs are also deductible.
Casualty and theft losses
Casualty and theft losses are now limited to losses that occur due to a federally declared disaster. Refer to the Schedule A instructions to find out more about this personal deduction

What qualifies as a business deduction?

The IRS provides extensive instructions to help you determine what qualifies as a business deduction, and the instructions are helpful for sole proprietors, partnerships and Limited Liability Companies (LLCs). Here’s a look at some common types of business deductions.
Advertising and promotion
As a business person, you know the importance of marketing and advertising. Luckily, any expenses associated with promoting your business’s product or services are typically 100% tax deductible. That means any cash you spend on business cards, signage, or even your website can be deducted from your company’s taxable income — reducing your tax liability.
If your company is run as a sole proprietorship or single-member LLC, you can claim this expense on Form 1040, using Schedule C. On the other hand, if your business is a partnership or multi-member LLC, you can use Form 1065.
Business interest and bank fee
While it’s important to advertise your business, it’s also important to have capital available for business purchases. As such, many small businesses may take out business loans to finance new projects, or use credit cards to buy business related items — such as office supplies — or to pay for business travel expenses.
In either case, whether you’ve taken out a loan or used a credit card to finance your business, you can deduct the interest incurred on Schedule C. You can also deduct any fees the bank may charge on your business account.
Legal and professional fees
And when it comes to fees, don’t forget that you can also deduct your tax-preparation fees, including any fees associated with tax-prep software or costs to file. This is especially important for self-employed individuals who might prefer to use a professional tax preparer or accounting software to maximize their deductions.
Business meals
Do you have to meet clients for lunch? Or maybe you need to work from a coffee shop now and again to do some networking? You can deduct that too. In fact, you can deduct up to 50% of any food and beverage costs that were business related on Form 1040, Schedule C. You’ll just need to keep track of the following:
  • The amount of each expense
  • The date and place of the meal
  • The business relationship of the person you dined with
Business insurance
Many small businesses choose to insure their company in order to protect their financial assets and intellectual property from theft. Additionally, most of these policies will help you cover the costs of damage done to your company’s physical assets, including property damage, theft, or vandalism. As insurance is an expense that is often crucial to your company’s continued functionality in case of an emergency, it is also deductible on Schedule C.
Home office
Speaking of insurance, if your home is also your place of business you can deduct the cost of your renter’s or homeowner’s insurance as part of your home office deduction. But that’s just the first benefit of working from home.
In fact, if you’re a self-employed independent contractor or own a small business that you run out of your home, the home office deduction is one of the most important deductions you can claim. If you use part of your home exclusively for business use, you can write off the expenses associated with that part of the house (based on the square footage) on your tax return using Form 8829. Then post the deduction amount you calculate to Schedule C. Home office deductions are closely reviewed by the IRS, so you need to have your records in good order.
Business use of your car
If you use your home in the course of operating your business, you might also use your car. If so, good news: That’s another deduction. However, the amount you can deduct will depend on whether you use that vehicle solely for business purposes or use it for both business and personal use.
If the vehicle is used exclusively for your business, you can deduct the entire cost of its operation. That means the cost of any gas, maintenance, car payments and mileage you put on the car can be deducted from your taxable income.
On the other hand, if you use your car for both business and personal purposes, you can only deduct the costs associated with its business use. In general, this means you’ll need to carefully record your mileage and multiply it by the standard mileage rate — it was $0.545 per mile for the 2018 tax year — in order to calculate the total amount you can deduct. (As a note, you can legally use the standard mileage rate, even if your actual mileage costs are less than the rate given by the IRS.)
So the next time you drive to a meeting, trade show, or speaking engagement, be sure to note how many miles you log. Whether you use your vehicle solely for business, or also use it for personal reasons, you can use Form 1040, Schedule C to deduct the costs.
Education
Chances are, as an entrepreneur or self-employed worker, you’re a go-getter that’s always trying to improve yourself and your business. As lifetime learning is one of the best ways to ensure you’re always on top of what’s going on in your industry, it’s good to know that educational costs are also fully deductible — as long as they increase your expertise and add value to your business.
Among the types of educational items that qualify for an IRS deduction are:
  • Classes that improve skills specific to your industry
  • Workshops that improve your skills and expertise
  • Webinars or seminars
  • Subscriptions to professional and trade magazines or journals
  • Books specific to your field
When it comes time to report these expenses to the IRS, record these costs as professional development on Form 1040, Schedule C.
Charitable contributions
If you’ve made significant charitable donations in the last year — whether as a business or an individual — those can also be deducted. You can deduct personal charitable contributions on Schedule A of Form 1040.
Use Form 1040, Schedule C to claim business charitable contributions if you own a sole-proprietorship or are self-employed. If you’re filing as an S corporation or a partnership, you will need to file using Schedule K-1. S corporation shareholders and partners in a partnership are issued Schedule K-1, and this form reports income and expenses for the tax year.

Get back to busines

If you have questions regarding itemized deductions or business deductions, it’s best to ask a tax accountant or other tax professional. The IRS website is a great resource, but the language on the site can sometimes be a little hard to wade through. The most important part of taking deductions is that you keep your receipts. Doing so ensures that your deductions are as accurate as possible and can protect you in the event of an audit.
Itemizing deductions can lower your personal tax liability, and posting business deductions will decrease your taxes on business income, which can be a big help when it comes time to pay your state and federal taxes. Wading through receipts to find those deductions might not be fun, but it’s definitely worth the time. Paying as little in taxes as possible frees up cash for what you actually want to do: grow your business.

Tax dates and deadlines you need to know for a successful year

By Ken Boyd
Managing a business means acting, reacting, and making dozens of important decisions every day.
With quick choices in the heat of the moment that pop up to dealing with standard operating procedure, it’s easy to lose sight of what’ll happen next week, let alone next month. Planning for the long-term can feel daunting, especially when it comes to taxes.
It seems every year tax season has a way of sneaking up on us. You scramble to reconcile your books and run your business at the same time. Long nights. Panic. Frustration. Where is that receipt from that one lunch in January last year?
But this year will be different. This year, you’ll be organized. We’ll show you how.
The key to staying on top of it all is to start now. Planning for the interim IRS due dates can ensure you’re on track and ready to close out your year. That’s why we’ve created the 2019 Small Business Tax Calendar. Use this it help minimize your risk of accruing unnecessary penalties and interest costs.

What’s your process?

Proper tax planning requires you to submit tax documents on a variety of due dates.
Start this process by checking with your CPA to confirm the due dates for the upcoming tax year. Create a system to remind you when these dates are coming up, and include enough lead-time to file the tax documents in a timely manner. You can input new alerts into your calendar software, or write the dates in your planner.

Your biggest time saver

For many businesses, payroll is the most complicated and time-consuming task that must be performed, and taxes are part of that process. If you create a system to process payroll efficiently, you can save a large amount of time.
Payroll is complicated for several reasons:
  • Employee records: Each worker’s payroll information is different, including different salaries, hourly rates, tax withholdings, and benefit payments. Payroll information also changes, as employees are promoted or have a change in family status. Maintaining these records is time-consuming.
  • Tax tables: Both federal and state income tax rates change frequently, and companies with employees in multiple states must withhold income taxes for more than one state. In addition, you may need to withhold income for city and local taxes. This makes calculating gross and net pay even more difficult.
  • Tax reporting: Tax reporting: The federal, state, and city income tax returns are all different, and you may need to file a dozen tax forms each month and year.
You may save time and costs by outsourcing the payroll function to an outside company, such as QuickBooks Payroll. These companies can manage both payroll processing and tax reporting, and they make the necessary changes to their software as the tax laws change.

2019 tax calendar

Here are the important due dates you need to know for 2019. They’re grouped by the type of tax collected:

Estimated tax payments

Your firm may hire and pay both full-time employees and independent contractors.
Businesses are required to withhold federal and state income taxes from employee wages. Your firm does not withhold taxes for contractors, but companies must report payments made to independent contractors. The taxes and reports are submitted on several dates throughout the year.
  • January 31, 2019
    Deadline to send out W-2 for your employees and to file the documents with the IRS. You will need to submit copies of their W-2s to the IRS.
  • February 15th, 2019
    Deadline to issue 1099s to all independent contractors who received payments in 2018.
  • February 28, 2019
    Deadline for businesses to file information returns that report on 1099s issued for 2018. Companies use IRS Form 1096 (Annual Summary and Transmittal of US Information Returns for this filing).
  • April 1, 2019
    Deadline for filing 1099s electronically. If you don’t file electronically, the deadline is February 28 (see above).

Corporate tax returns

The type of tax return that your company must file depends on the business structure you choose when you start your business.
Here are the most common forms of business structure:
  • Sole proprietorship: You are the only owner of the business, and setting up this type of entity is the easiest. However, you’re exposed to business legal liability, because there is no legal difference between you personally and your business. If you own a coffee shop, for example, and a customer falls and sues your shop for negligence, both your business and personal assets are at risk.
  • Corporation: A corporation (or C corp) offers the most legal protection because the business is a separate legal entity from the owner. A C corp also makes it easy to bring in other owners by issuing shares of common stock. However, setting up a C corp and meeting the regulatory reporting guidelines can be time-consuming.
  • S corporation: If you’re an S-corporation (S corp), all the profits and losses of the S corp are passed through to each shareholder’s tax return.
  • Partnership: A partnership files a tax return, but the profits and losses of the partnership are passed through to each partner’s tax return.
  • Limited liability company (LLC): An LLC allows you to limit your personal liability for business risks, but not have to meet the same level of regulatory requirements as a corporation. There are several different LLC structures, based on your state’s tax laws.
Work with a CPA or an attorney and consider the pros and cons of each business structure. Once you know your business structure, you can use these dates for tax filing and reporting purposes:
  • March 15, 2019
    Tax return deadline for S Corps (using Form 1102S), and for partnerships (using Form 1065). You can file for a 6-month extension to file either return, but your tax liability is still due on March 15th.
  • April 15, 2019
    This is the due date for corporate tax returns, using Form 1120. If you must make 2019 estimated tax payments for your business, the 1st quarter 2019 payment is due on April 15, 2019.
  • June 17, 2019
    If you must make 2019 estimated tax payments for your business, the 2nd quarter 2019 payment is due on June 17, 2019.
  • September 16, 2019
    If you must make 2019 estimated tax payments for your business, the 3rd quarter 2019 payment is due on September 16, 2019. If you received a 6-month extension to file a tax return for an S corp or a partnership, the return is due on September 16.
  • October 15, 2019
    If you were granted an extension of time to file a corporate tax return, your tax return is due on this date.
  • December 16, 2019
    If you must make 2019 estimated tax payments for your business, the 4th quarter 2019 payment is due on this date.

Estimated tax payments

Self-employed individuals and most businesses must make quarterly tax payments. These payments ensure that the individual or business pays a large percentage of the estimated tax liability during the year, rather than in one payment when the tax return is filed.
You’ll see both business and personal estimated tax payment dates below.

Individual tax returns

Almost everyone is required to file a personal tax return using Form 1040, and this includes business owners. The income produced by your corporation, partnership, or other business entity may generate income that is posted to your personal tax return.
  • January 15, 2019
    Deadline for 4th quarter estimated tax payments for 2018.
  • April 15, 2019
    ndividuals must file the 2018 income tax return and pay any remaining tax liability due by this date. You can request more time to file your tax return by completing IRS Form 4868, but your tax liability is still due by April 15. If you must make 2019 estimated tax payments for your personal taxes, the 1st quarter 2019 payment is due on April 15, 2019.
  • June 17, 2019
    If you must make 2019 estimated tax payments for your personal taxes, the 2nd quarter 2019 payment is due on June 17, 2019.
  • September 16, 2019
    If you must make 2019 estimated tax payments for your personal taxes, the 3rd quarter 2019 payment is due on September 16, 2019.
  • October 15, 2019
    If you were granted an extension of time by filing Form 4868, your tax return is due on this date.
  • January 15, 2020
    If you must make 2019 estimated tax payments for your personal taxes, the 4th quarter 2019 payment is due on this date. If you need to know any of these dates for your business or personal taxes, post the dates to your calendar and set up a reminder so that you’re alerted when the date arrives. This system will keep you on track and help you avoid tax fees and penalties.

Common misconceptions

As you think about tax planning, consider these common taxpayer misconceptions:
  • Realized gains vs. recognized gains: If you buy an asset and sell it for more than you paid for it, you have a realized gain. If, for example, you buy 100 shares of IBM common stock at $10,000 and sell the shares for $15,000, your realized gain is $5,000. A recognized gain, on the other hand, means that you owe taxes on the gain. Not every realized gain is recognized for tax purposes, and there are dozens of examples. In some cases, you can offset a realized gain with a realized loss and not owe taxes on the gain. This can impact both business and personal tax returns.
  • Marginal tax rate: Your marginal tax rate is not the tax you pay on all of your income. Instead, the marginal tax rate is the tax you pay on your next dollar of income. The IRS Tax Tables provide different tax rates for different levels of income. For 2018, taxpayers pay at 22% tax rate on income from $38,700 to $82,500, and a 24% rate on income from $82,501 to $157,500. Assume, for example, that your salary is $82,500. If you earned $10 more in 2018, you would pay 24% on those next $10, and your marginal tax rate is 24%.
  • Alternative minimum tax (AMT): Some individual taxpayers must calculate their tax liability twice, because of AMT. The alternative minimum tax was put in place to assess taxes on certain transactions that would otherwise not be taxed. A good example is income earned on certain municipal bond income. Assume that you calculate your taxes and come up with a $15,000 tax liability, and the tax law requires you to calculate AMT. The AMT calculation will add municipal bond income into tax calculation-income that is tax-exempt outside AMT. If the AMT tax calculation generates a higher tax liability, you pay taxes on the larger amount.
Make sure that you understand how each of these issues impacts your personal or business tax return.

Invest the time to plan

Invest the time that’s necessary to calculate your taxes, make payments, and file the returns on time. Proper planning can help you avoid interest costs and penalties down the road. Ask a CPA to help you with this process.

Everything you need to know about small business tax payments

By Ahmed Muneeb
As a small business owner, you may assume the IRS has bigger fish to fry than your small business operations. However, recent reports have cited that the IRS has increasingly targeted small businesses for tax audits.
The National Taxpayer Advocate estimates small businesses spend approximately 2.5 billion hours each year preparing tax returns or responding to IRS inquiries about their returns. This is the equivalent of 1.25 million full-time jobs. The study also cited that 70% of small businesses employ tax professionals for tax preparation and to represent their interests before the IRS.
To avoid wasting time, money, and resources, pay attention to your potential tax burden when forming your business. The formation stage is vital to maximizing deductions and minimizing your tax liabilities for the future.
With the Tax Cuts and Jobs Act in full effect, many small business owners are unsure how the new tax law will impact their tax bill. Many business owners don’t even know corporate income tax rates, business tax deductions, or what tax cuts they’re eligible for.
Every small business owner should understand these five important things that can affect the business’s income taxes and overall tax situation.

1. Choose your legal structure wisely

When forming your business, it’s important to be aware of the different legal structures that exist, since each structure has different tax implications. Sole proprietorships, S corporations, C corporations, and limited liability companies (LLCs) are all different legal structures with different tax requirements.
Here are the differences between each.
  • Sole Proprietorships
    If you’re operating an unincorporated business and are the only owner, then you’re automatically a sole proprietor. This is the most common business entity with over 23 million sole proprietorships in the United States. It’s the easiest to set up and manage, but also one of the riskiest since you personally assume all financial and legal obligations.
    Sole proprietorship taxes are straightforward since you can report business income and losses on your personal tax return (Form 1040), using Schedule C. Your company profits are added to other income (interest, dividends, etc.) on your personal tax return.
    With the new tax law, sole proprietors are able to take advantage of the 20% tax deduction, which allows them to deduct 20% of the business’s net income from their taxable income, which reduces their tax liability.
  • S Corporations
    S corporations may pass income directly to shareholders to avoid double taxation. Double taxation means that a firm’s profit is taxed on a business tax return, and any after-tax profits distributed to owners is taxed again as personal income. But this won’t happen if your company is set up as an S corporation.
    S corporations must have no more than 100 shareholders, all shareholders must be U.S. residents, and each member is only allowed to own one class of stock. Shareholders report business income, expenses, losses, and deductions on their personal tax returns. S corps are also eligible for the 20% tax deduction, but shareholders pay taxes on business profits at personal income tax rates. It’s one of the most common types of legal structures for small business owners because they have the same advantages as traditional corporations but with more tax flexibilities.
  • C Corporations
    Traditional corporations are C corporations (C corps). The organizational structure of a C corp consists of shareholders, a board of governors, officers, directors, and employees. Although Fortune 500 firms are the most well-known C corps, it’s still a viable option to structure your small business this way. It provides legitimacy to investors and clients, allowing you to raise funds faster and land larger contracts. If you anticipate quickly transitioning from a startup to a more established company, then the C corporation structure may be right for you.
    C corps are the only type of business discussed here that must pay taxes on the company level. The current corporate income tax rate for C corps is a flat 21%. Additionally, in contrast to S corps that lets shareholders report profits and losses on their personal tax returns, shareholders receive dividends (i.e. a share of company profits). Shareholders must pay personal taxes on those dividends.
    The taxation structure on both the company and shareholder levels is referred to as double taxation. This turns off many small business owners. When starting out, LLCs tend to be a more popular option than C corps for various reasons.
  • Limited Liability Companies (LLCs)
    Many small businesses tend to form as an LLC. LLC members have two important tax advantages: no double taxation and deductible business losses.
    Unlike C corporations, where business income is taxed twice—at the corporate level and at the individual level—LLCs are only taxed once at the individual level. This means that members pay taxes on business income on their personal tax returns in the same way a sole-proprietorship or an S corp does. This treatment is referred to as a “pass-through” tax treatment.
    Another advantage of owning an LLC is that you can have an unlimited number of members (i.e. potential shareholders) in your LLC, which makes it easier to raise capital and expand your business. If you have multiple members in your LLC, you have to determine the ownership percentages for each member.
    With multiple-member LLCs, you can choose to be taxed as a partnership or as a C corporation. If you choose to be taxed as a partnership, then you’ll report your share of the business income on your personal income tax returns. If you choose to be taxed as a C corporation, you will be subject to double taxation.
    Single-member LLCs, on the other hand, are automatically taxed as a sole-proprietorship.
    You may pay upfront costs to set up and maintain your LLC with your state. To operate an LLC in California, for instance, small business owners pay $800 in state taxes annually—regardless of how much money the LLC is making or losing.
    If you’re in a state where you have to pay annual taxes to operate an LLC, then your job is to grow the business enough to offset that cost. Every state has different annual taxes to operate an LLC and some may not have any annual state taxes, so it’s important to check before you establish your business.
    But the tax advantages, pass-through profits, and management flexibilities still make LLCs a popular option. Your tax situation depends on doing your research to determine which legal entity best suits your needs.

2. Use tax deductions to lower your tax bill

New small business owners have to stretch their financial resources.
Small businesses have business expenses that include vehicle expenses, wages, business travel, contract labor (i.e. hiring freelancers and independent contractors), supplies, equipment, depreciation of assets, rent on business property, utilities, insurance (i.e. property, business, health insurance, etc.), and repairs.
Fortunately, as a small business owner, you are able to minimize your business taxes by writing off a lot of those operational expenses come tax season.

3. Write off your startup costs

Many brand-new startups make the mistake of thinking initial business expenses aren’t deductible until their businesses are fully operational. However, the IRS allows small business owners to deduct a wide array of startup expenses before beginning business operations.
The IRS allows you to deduct up to $5,000 in business startup costs and up to $5,000 in organizational costs, but only if your total startup costs are $50,000 or less. With the help of your tax software or a tax expert, you can write off typical costs associated with setting up a business during tax filing.
Typical costs to set up a business include business insurance, office space, real estate, office supplies, business cards, business assets, professional fees (i.e. hiring accountants), and small business loan fees. If you’re operating your business from a home office, you can qualify for a home office deduction.
Additional costs can also include employee training, locating suppliers, and advertising to potential clients. While companies cannot deduct licensing and incorporation fees as startup expenses, these costs may be deductible as organizational expenses.
It’s important to remember that startup founders can only deduct those expenses leading to the creation of a viable business entity. If you decide against forming your business, the above costs will be labeled as personal expenses, and you may not be able to deduct any of your costs.

4. Pay quarterly taxes

According to the IRS, individuals, including sole proprietors, partners, and S corporation shareholders, have to make quarterly estimated tax payments if they expect to owe taxes of $1,000 or more when their federal returns or state tax returns are filed.
You can figure out your estimated tax payments as a business owner using Form 1040-ES. It may be helpful to use last year’s income, deductions, and tax credits as a starting point. You can also use your previous year’s federal tax return as a guide.
Once you’ve figured out the number and e-file, you can pay the IRS in a number of ways. These include IRS Direct Pay, which takes money owed out of your checking or savings account, and IRS Pay By Card, which allows you to pay with a credit or debit card online. Another option is paying by phone.
Quarterly estimated tax payments for each respective quarter are due every April 15, June 15, September 15, and January 15 (of the following tax year).
The self-employed and sole-proprietor business owners almost always have to pay estimated quarterly taxes unless their business loses money. Unlike a salaried employee—where their employer withholds a certain amount with each paycheck—sole proprietors, freelancers, and business owners assume the full tax burden.
Additionally, people who are partners in a business, a corporation, or an S Corporation often pay quarterly taxes if they expect to owe at least $500 in taxes.
Business owners who fail to submit at least 90% of the taxes they owe are subjected to severe penalties, so working with a tax professional can be very helpful to double check if the amount owed is correct.

5. Some business taxes you might need to pay

Keeping track of the amount of taxes you’re responsible for can come as a great surprise when you own your business. Here are the most common types of taxes to account for as a business owner.
  • Self-employment tax
    If you’ve never owned a business before, then you are likely unaccustomed to paying self-employment taxes. Businesses pay a 15.3% FICA tax, which is used to fund Social Security and Medicare. Employees pay 7.65%, and employers pay the other 7.65%.
    As a self-employed individual, you’re responsible for the full 15.3%, which is sometimes called “self-employment tax.” However, you can deduct half of the self-employment tax on your personal tax return (Form 1040). Additionally, it’s important to take advantage of all possible startup and operating business expenses to maximize tax deductions.
  • Payroll tax
    If you have employees, you’ll be responsible for paying payroll taxes on their wages. Payroll taxes include federal income tax withholding, Social Security and Medicare taxes, and federal and state unemployment taxes. Many businesses hire a payroll agency to file their tax forms and manage their payroll tax liabilities on their behalf.
  • Excise tax
    Depending on the nature of your business and industry, you might be responsible for paying excise taxes. Excise taxes are indirect taxes, that are not paid directly by the consumer of a product.
    Often the tax is included within the price of the product itself, such as with cigarettes, gasoline, and liquor. Businesses that sell products subject to excise taxes are responsible for collecting the taxes and sending them directly to the IRS.
  • Sales tax
    Although a federal sales tax doesn’t exist in the United States, the majority of states levy sales taxes. Customers pay a sales tax on goods and services at the point of purchase. Business owners are responsible for collecting and reporting sales taxes to local and state governments. As a small business owner, it’s also important to understand state and local tax rules with respect to sales taxes.
  • Property tax
    If you own commercial property, you’ll have to pay property taxes to the city or county where your business is located.

Maximize your flexibility as a small business owner

Setting up and operating a small business can come with significant initial costs.
Whether you’re flying solo or working with partners, the tax system is set up to help offset those potentially high costs for self-employed professionals at tax season. Maximizing tax deductions by writing off startup and operating costs can limit your tax liability in relation to your business income.
Having quality small business tax software can guide you. As a new business owner, it also helps to work with a tax professional to avoid common pitfalls like underreporting your business expenses or ignoring an important tax form that can save you money.
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