Some Business Tax Tips for 2010
‘Tis the season of taxes!
Keep in mind that I am not a CPA nor am I a tax professional but I am, like many business owner, facing a lot of confusion in this arena; especially given the last two plus years of financial distress in the country and the constant changes to the tax code to generate more state and federal income.
Properly managing for taxes can really help a business survive from one year to the next. Don’t get blindsided by your tax obligations and fatally hurt your business.
First things first: Understand how your form of business organization will be taxed. Some forms of organization are pass-through entities where all business income flows through to the individual owners’ personal tax returns (regardless if actual cash makes it into personal bank accounts) like partnerships, S Corporations and sole proprietorships while others are taxed as if they are separate, individual entities like C corporations.
Also, while not covered here, business owners must also understand their state tax requirements. Some states have similar tax policies to that of the federal income tax, some states only tax certain income like capital gains from the sale of assets and some have completely different tax regulations where they only tax business asset values – but not income. Thus, know your state.
The first thing a business should do is attempt to reduce its taxable income. This can come in the form of taking additional depreciation on business assets – look into the expanded Section 179 Deduction – or from charitable contributions (make sure that the net effect benefits the business) or even from just realizing all business expenses that can be taken prior to the year’s end or the filing deadline (if permitted).
The following are some of the top issues businesses will face this tax year:
Employees vs. Contractors. One of the biggest issues that businesses face is determining if a person is an employee and subject to taxes via the business or is an independent contractor responsible for their own taxes. The IRS provides detailed information on this subject. But, as a business owner, you do not want to have to make up for all the payroll taxes of a person who you thought was an independent contractor but the IRS deemed an employee simply by how that person was treated in the business.
Schedule K-1s – those, like LLCs and some partnerships and many S Corporations must provide accurate Schedule K-1 to the IRS. The main issue here is to match those schedules to what partners, members and owners show on their individual tax returns.
W-2s – it is the employer’s responsibility to file W-2s with the social security administration showing total wages paid to employees. Further, those businesses with more than 250 employees MUST file their W-2s electronically.
Smaller business owners, earning less than $48,800 may qualify for the Earned Income Tax Credit (EITC).
Spouses. Many small businesses are operated by husband and wife teams and the IRS, depending on how each spouse is treated in the business, may tax these spouses differently. Some will be treated as partners or owners while other can be treated as employees (requiring the business to account for and pay Social Security and Medicare on their behalf via their payroll – regardless if your business generates payroll or not).
Lastly, regardless if you can pay your tax obligation or not, you should always file your business tax returns. This will go a long way in ensuring that these taxing entities will work with you not against you; especially if they think you are trying to avoid paying your taxes.
Some Helpful Resources:
Score offices, SBA offices and Small Business Development Centers – all of which are free to use and offer classes and seminars conducted by local tax professionals.
The IRS website which provides useful information for nearly every business tax issue as well as offers webinars that cover some of the most common tax issues for businesses.
Local state sponsored resources. The IRS and many states have local offices in and around major cities in every state. These offices can be visited in person or via the phone and internet.
Lastly, the IRS, via its website, offers numerous ways to file for free should your business not be too complicated. Visit the IRS’s website and look for the Free File Logo.
Joseph Lizio holds a MBA in Finance and Entrepreneurship and has a strong commercial lending background. In his current venture, Mr. Lizio is the founder of - Business Money Today - , a site designed to help business owners find and obtain capital to grow their businesses.
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