QuickBooks is a great tool to post transactions, generate financial statements, and to create useful business reports. When it comes to taxes, however, you may need the help of an expert. As you wrap up your business year, it’s a great time to find an accountant to help you address tax issues.
Here are the top things new businesses need to know for tax time:
1. Business Structure
The business structure you choose has a big impact on how you pay taxes on your company profits, and an accountant can help you understand these issues.
There are many ways you can structure your company, and that causes confusion for taxpayers. The best way to understand the differences is to consider corporations vs. all other business structures:
- Corporation: Corporations are subject to double taxation because a corporation files a tax return and pays taxes on profit. The owners can retain profits for use in the business, or pay shareholders a cash dividend. If a dividend is paid, the dividend income is added to the shareholder’s personal tax return. The owner is also a shareholder.
- Pass-through entities: Most other business structures pass the company profits and losses directly to the owners. Sole proprietorships, partnerships, and many other businesses are referred to as pass-through entities. Assume, for example, that your share of a partnership’s profit is $10,000. The partnership files a tax return, and the $10,000 is added to your income on your personal tax return.
Work with an accountant, so that you know which returns you need to file.
2. You Need to Pay Self-Employment Tax
There’s a great deal of confusion about self-employment tax. As a new business owner, if your income isn’t subject to employer withholding, you need to pay self-employment tax.
Employees normally pay their share of Social Security and Medicare taxes through payroll withholdings, and the dollar amounts of the withholdings are reported on their W-2 form. The employer pays a portion of the tax also, and the employer deducts the taxes paid as a business expense.
As a business owner, you’ll be responsible for paying both your half and the half normally paid by an employer. The good news is that you can lighten your tax burden by deducting the portion normally paid by the employer.
Ask an accountant to verify that your deduction amount is correct.
3. Paying Quarterly Estimated Tax Payments
Many new business owners don’t understand the connection between tax withholdings and estimated payments.
There are two primary ways to pay tax liabilities: through tax withholdings or through estimated tax payments.
Before becoming a business owner, your taxes were probably withheld from your paycheck by an employer. As a business owner, you still need to make sure you cover your tax liability for the year through estimated tax payments or you may face penalties for insufficient or delayed payment. This applies whether you are a sole proprietor, partner or self-employed.
You can estimate how much you need to pay by factoring in your business income for the year and any estimated payments you’ve already made. Talk to an accountant about your specific situation to understand what you need to pay.
4. You May Have Missed Deductions
Businesses can deduct expenses that are ordinary and necessary. Items that reasonably fall within this category might differ by company and industry. Some common business deductions could include car expenses, rent on a business or home office, supplies, utilities, depreciation, employee wages or travel expenses.
5. Filing an Extension and Your Tax Liability
Filing for an extension to pay your taxes later does not change your tax payment due date. April 15th is the due date for filing a personal tax return. If you request an extension to file your return later, your tax liability is still owed on April 15th.
Many people ask for an extension of time because their tax situation is complicated. However, you should be making estimated payments each quarter if you’re a business owner, or paying your tax liability through withholdings on your wages.
An accountant can help you plan so that you can pay your entire tax liability by the deadline.
6. Don’t Overlook Tax Law Changes
Many tax laws, including aspects of the tax cuts passed in 2017, have a sunset provision. This provision places an expiration date on the tax cuts, which means that tax rates will increase when the 2017 tax cuts expire. Tax laws change constantly.
A tax accountant can provide the latest information on tax law changes.
7. Other Taxes
Lastly, don’t forget about sales tax and payroll withholdings. This may not apply to every company, but can be an important part of your yearly tax consideration if it pertains to you. How much sales tax you need to collect depends on where you are selling goods and services. If you have employees, you’ll have to determine how much to withhold for payroll. Both can be complex areas where you may want to consult an expert.
Working With an Expert
Growing your business requires time and effort, and you can save time on tax issues by finding an accountant. If you’re already working with one, begin collaborating with them by logging in and inviting them to review your QuickBooks. If you don’t have one, you can start your search with the QuickBooks Find-a-ProAdvisor site.