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Florida Small Business Tax Laws and Rules

Florida Small Business Tax: Here’s What You Need to Know

With Miami recently named the top city to start a small business, now is a great time to get a startup off the ground in Florida. Most small businesses start out as sole proprietorships. Compared to many other business entities, sole proprietorships are simple to set up and run. Florida small business tax rules are also favorable for business owners and state laws are generally supportive of small business startups.

But  Individual advice from a Florida small business accountant is better than any information online, as your accountant will advise you according to your situation. Still, there’s nothing wrong with learning more about your small business tax liability in Florida.

Does Florida Have a Strong Economy?

Before looking into small business taxes, it’s good to consider the Florida’s economy. One of the benefits of starting a small business in Florida is the economic growth in the state. Of all US states, Florida has one of the fastest growing economies. According to statistics from 2018, if Florida were its own country, it would boast the 17th largest economy in the world based on GDP growth.

Some of the biggest industries in the sunshine state are as follow:

  • Tourism
  • Agriculture
  • International trade
  • Aviation
  • Life sciences
  • Financial services

While business in many other industries can thrive in Florida, the above represent the industries that employ the most people, generate the most revenue and make up the biggest part of the economy.

The labor force in Florida is expanding by more than 3% annually, while the rest of the US sees little to no growth in the same area.

Florida’s economy is growing at a fast pace. It helps that state laws in Florida encourage rather than dissuade people from starting businesses. When combining all of the benefits of starting a small business in Florida, including taxes and the economic outlook, the state is ranked as the 20th best state to start a small business overall. While that listing might seem mediocre, another survey listed Florida as the sixth best state to start a small business based on startup success.

How are Small Businesses in Florida Taxed?

Most small businesses are sole proprietorships. A sole proprietorship is a company owned by a single person. The owner of a sole proprietorship will usually have full say over what happens in the business, even if a small business employs a manager to make certain decisions, the owner will retain the ultimate authority in his or her business as the only owner.

Sole proprietorships are taxed on profit. This means that business owners will need to implement proper bookkeeping strategies to calculate their tax liability. Small business profits can be calculated monthly by adding up all income. Once a business owner know their total income, all business expenses must also be tallied. Subtracting all the expenses from the total income produces the profit.

While this system seems simple enough, both state and federal tax laws are always changing. Not all business expenses qualify for full deductions – meaning business owners can only subtract part of the costs of certain expenses.

To make matters more complicated, most small businesses in Florida will pay taxes in advance on a quarterly basis. What this means, is that businesses actually pay tax based on what they expect to earn in the future, not what they’ve already earned in the past. If a business underestimates its quarterly earnings and pays too little tax, outstanding taxes will need to be paid later, often with additional tax in the form of late payment fees.

Florida Self-employment Tax Rate

Self-employment tax acts as a replacement for Social Security and Medicare tax. As self-employed business owners don’t have these employment benefits, a self-employment tax compensates.

Florida’s self-employment tax rate is 15.3% for the first $128,400 net income of small businesses. Additional business tax rules apply across different income brackets, however.

Statistically speaking, Florida ranks fourth as one of the states with the lowest self-employment tax rates.

Should You Pay Tax on Your Side Business?

Paying self-employment tax when your business in your sole source of income is expected, but what about if you’re employed with a business on the side?

Unfortunately you’ll still need to pay self-employment tax. If your business makes more than $400 annually, you’ll be liable to pay self-employment tax, regardless of whether or not you hold a full-time (or part time) job.

Florida Sales Tax Rate

Sales tax is a tax levy on all product or services your business sells. As a result, almost all small businesses will qualify for some form of sales tax. One average, Florida sales tax is currently charged at 6%.

What this means, is that you will have to account for 6% sales tax on all the products or services you sell. If you need to sell something for $100 to make your desired profit, you’ll charge a customer for $106 to account for the money you’ll need to pay in sales taxes.

Forgetting to account for sales tax is a mistake many business owners make. Always calculate how much profit your business needs to make to be sustainable, then set your rates. Once you know what you desired rate is, add a 6% sales tax on top of this amount and put the money you get towards you sales tax aside. Never spend your sales tax money. Make sure you have enough left to pay all your taxes!

To calculate how much you need to add onto the cost of your product or service to account for sales tax, use your calculator to multiply your price by 0.06%. Once you have this result, add it to your price – this is the amount you’ll need to charge customers.

For example, if you have a product you want to sell for $50, your calculations will look as follows:

$50 x 0.06 = $3

The $3 is what you need to add onto your $50 to account for your small business taxes, so you’ll be charging your customer $53 for the product you sell.

In the past few years, Florida has consistently ranked 22nd for sale tax rates – meaning the sunshine state is relatively average as far as sales tax is concerned.

Florida Small Business Tax Summarized

Florida ranks 4th as one of the states with the lowest small business tax rates. This makes Florida a great state to start a small business. Tax laws in Florida do differ based on what type of business entity you own though.

While most small businesses operate as sole proprietorships, there are other business tax models in Florida. Florida taxes corporations at an approximate tax rate of 5.5%. However, there are many variables with regards to how much taxes a business entity will end up paying.

The best way to know for sure how much tax your business should pay, it’s best to hire an accountant to analyze your books. A Florida accountant will know what tax deductions, credits and exemptions your business qualifies for.

When consulting an accountant about your business’ tax liability, it’s imperative to have thorough financial records of your business on hand. If you don’t have any financial records yet, your first step should be hiring a reliable bookkeeper for your business. Once tax season comes around, your accountant will calculate your tax liability based on your financial books.

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How to get your first B2B customers - strategies for startup success

Startup Talk: How to Get Your First B2B Customers

B2B businesses are among the most profitable. Businesses have larger budgets at their disposal than individuals and often require products and services on an ongoing basis. The profitable nature of having businesses for customers is attractive to many entrepreneurs, but how can you get your first B2B customers?

Selling to Businesses vs Individuals

A lot of business models are centered around selling to other businesses specifically. Examples include marketing companies and many different kinds of Saas businesses.

Other business models have the potential to work with both businesses and individuals. Examples of businesses that can be both B2B or B2C include cleaning services, catering companies, auto workshops and printers. The benefit of working with businesses rather than individuals, however, is that businesses are likely to send ongoing work on a regular basis.

A cleaning service might get hired to clean company offices on a weekly basis, for instance. Similarly, an auto workshop might get work to do ongoing fleet maintenance on business vehicles. Printers and catering companies might get once-off work from individuals to print wedding invitations and prepare food – which is still a good source of income, but not ongoing. A business, on the other hand, will always have marketing materials to print and corporate functions to cater for.

Considering the benefit of B2B customers, even businesses with the potential to sell to individuals should market to business entities as well.

Turning Your Startup Ideas into a Profitable Business

There’s a good chance you’re sitting with a startup idea you haven’t acted on because you don’t know where to start getting customers. The difference between an idea and a profitable business is, after all, paying customers.

Or perhaps you already started your business on the side, but you’re struggling to generate enough income from it to make it your full-time job.

Whatever your current situation, your business will grow much quicker if you have B2B customers. B2B customers can offer you a better stream of reliable income than individuals.

But don’t get tunnel vision running after B2B customers. It can be tempting to offer a B2B customer a hefty discount because of the reliable income stream you expect to get. It’s okay to give loyal customers discount, but you’ll need to do some math beforehand.

Calculate How Many B2B Customers You’ll Need

First, calculate how much revenue you’ll need to run a sustainable business. Don’t forget to factor in all your business expenses, as well as taxes. A lot of entrepreneurs mistakenly forget to factor in taxes when calculating how much revenue they need. If you’re unsure about what you’ll need to pay in taxes, consult a tax professional to get an idea of your tax liability based on your income.

Knowing how much your business will make after tax will help you make accurate calculations. You can then proceed to calculate how much of your product or service you’ll need to sell to be sustainable.

With some business models, it’s easy to estimate how much a customer will be worth. With others, this can be much more complicated. To start out with, you just need to know how much you need to make to be sustainable, then reverse-engineer approximately how many B2B customers you’ll need to make that amount.

If, for instance, you run an office cleaning service and you charge a monthly rate between $500-$1500 for an office (depending on the size), your average B2B customer might be worth about $1000 monthly. If you need to make $15,000 to run a sustainable business and cover all your expenses, you’ll need about 15 B2B customers.

At first, calculate how much you’ll need to sell at your standard rate. Once you have a prospective B2B customer, consider if they will provide you with enough ongoing income to qualify for a discount. If not, don’t offer to give them one. Businesses often have more budget than individuals, so they might not expect a discount anyway.

How to Get Your First B2B Customers

Only go look for customers once you know how many you need and what you must charge them. Knowing this information will help you have a clearly defined goal to work towards. It’s no good getting ahead of yourself and onboarding customers when you aren’t charging them enough to be sustainable.

Once you’ve got a goal to work towards, follow the necessary steps to get your first B2B customers.

1. Define Your Target Customer

Every entrepreneur has heard this advice, so it’s nothing new. Despite that, a lot of entrepreneurs still don’t know how to accurately identify profitable target customers.

There are a few things to consider when identifying who to target as potential customers:

  • What business is most likely to require your services?
  • What businesses will be easier to sell to?
  • What businesses will have enough financial resources to spend on your product or service?
  • Will your product or service be fundamentally important to the operation of these businesses?

For example, if you run a printing shop, you might target all businesses. Most businesses could use pamphlets, so you might end up casting your net too wide when approaching potential customers.

In this case, take a step back and ask yourself, what businesses might need a lot of printed materials? Surprisingly enough, it might not be businesses in need of only corporate materials. Events planning companies, for instance, might have regular work printing event invitations and plans, which could include personal events like weddings and baby showers. Apart from this, they might also have regular work for printing event banners and advertising posters.

Event planning firms could make good customers for printing businesses because your service would be a fundamental part of what they do. Getting printed materials is a service they’ll always require. They’ll have lots of work from their different clients, so one event planner might bring in the same amount of business as 10 other customers combined.

Identify what kind of business could be the same kind of valued customer for your startup, then approach these companies first when prospecting.

2. Identify Your Selling Points

Once you know what businesses to approach, think about how you’ll sell your product or service to them. What is your business’ main selling points? A selling point can be anything that helps your business stand out above the rest.

If you run a cleaning service, it could be that you use environmentally friendly cleaning agents, for instance. Environmentally aware businesses would appreciate this thought.

Or, perhaps your main selling point could be that you offer your services after hours. If you’re looking to target offices, many customers might like the idea of getting cleaners to come in after their employees’ head home. No noisy vacuum cleaners disturbing employees while they work, or areas left uncleaned because they were being occupied by working employees.

Whatever industry your business serves, make sure your target customers will value your selling points. There’s no point in using selling point that won’t arouse interest from prospects. Explain why your selling points are valuable and how they solve a problem your competition doesn’t cater for.

Don’t Be Too General

When coming up with selling points, there are a few common ones that businesses use. Some examples include:

  • X Years’ experience in our industry!
  • Fully licensed and trusted service.
  • Exceptional service and friendly staff.

These aren’t bad selling points in all cases, but many startups can’t brag about their industry experience.

Plus, these selling points are generalized. Your prospects have heard them before – probably more than once too. Any business can claim to have “exceptional service and friendly staff”, but this doesn’t always mean it’s true. A lot of businesses who claim to have friendly staff will inevitably have bad service and rude staff.

It’s not to say you can’t use general selling points at all, but you need to combine them with unique selling points as well. A unique selling point can often add credibility to more general ones.

3. Try Cold Calling or Emailing

It can be scary to make phone calls or send emails to businesses you have never contacted, but don’t let this put you off.

Once you have your selling points, write a professional cold email or some cold calling scripts. You don’t need to follow your cold calling scripts to the T, just have some notes on hand for reference. Also anticipate common questions your prospects might ask, and have a summarized answer ready in writing.

Alternatively, you could also visit potential customers at their location (if it’s open to the public) and hand out a business cards with a short 2-minute brief.

4. Contact the Right People

Contacting the right people can make the difference between whether you get interest or get shrugged off. Especially if you’ll be approaching bigger businesses, make sure you get through to the right person.

The right person to contact will be someone who has the authority to make buying choices regarding your product or service. If your business is somewhat technical, they also need to be someone who will understand the technical advantages of your product or service – someone who will be able to appreciate your superior product or level of expertise.

LinkedIn can be a great place to source the right people to contact. As an added benefit, it’s also a great place to reach out to these people about your product or service.

Compile a list of businesses and individuals to contact, then start making cold calls and sending emails, or connecting with people on LinkedIn.

A lot of online business advice instructs entrepreneurs to inform their personal network of their new startup. This could help in some cases, but in most cases your existing personal network won’t be enough to bring in enough customers. That’s why networking is an important step in growing your business. With enough perseverance, you should get your first B2B customers soon!

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tax deductions for small business

Tax Deductions for Small Business You Should Know

Tax deductions can go a long way in helping you get more out of your get mall business. A lot of business owners might feel hesitant to take full advantage of all the tax deductions they qualify for, but this shouldn’t be the case. As long as your business is doing its part and paying tax, there’s no reason why you shouldn’t take advantage of permissible tax deductions. After all, the extra money you get for your business by deducting certain expenses can be spent on growing your business which, in turn, will mean that you can contribute even more to the economy.

With that in mind, there are a number of things you can (and should) legally deduct from your taxes.

Rent for Your Business Premises

Renting your business premises is probably one of your larger business expenses. For that exact reason, tax deductions on your rent can make a big difference for your business financially. The more expensive the rent on your premises, the bigger the advantage of deducting this expense, so if you have a large business premises with hefty rent, this can help to lighten the load.

It doesn’t matter what kind of business you have either. Shop owners, healthcare practitioners and even automotive businesses can all take advantage of this deduction. The only prerequisite is paying rent on your business premises.

Vehicle Maintenance and Upkeep

Vehicles are another big business expense for a lot of small businesses. By keeping track of all your business expenses related to your company vehicles, you can deduct your vehicle expenses from your tax. Examples of vehicle expenses that can be tax deductible includes money spent on fuel, vehicle maintenance and repairs, parking and even tolls.

If you’re not keen on all the extra admin involved in tracking each individual vehicle expense, you also have the option of using the IRS standard mileage rate, which is currently sitting at 58 cents per mile driven.

Another alternative is to choose whatever option gets you the best tax return. To calculate this, you will have to keep track of all your vehicle expenses, which means it will involve a lot of work, but it might be worth it if your business owns any vehicles that are more expensive to maintain due to higher fuel consumption or more expensive service parts.

Any vehicle used for business purposes can qualify for this deduction, whether it’s a car, truck or even motorcycles. There are some exceptions to motorcycles, thought. For instance, you’re not allowed to use the IRS flat rate for a motorcycle. The only way you can get deductions for a motorcycle, is by keeping track of all your business-related transport expenses.

Computer Software

Almost all businesses have computers. As a result, most small businesses can benefit from deducting computer software. Whether you have an office and you pay an annual expense for your operating system, word editors and slideshow software, or you have a graphics design firm and you run programs to create images, you can deduct your computer software as a small business expense.

To take full advantage of this deduction, look into all the software and even online tools you use for your small business. You might even be able to deduct the fee you pay to your email service provider or money spent on bookkeeping software.

Advertising and Marketing Expenses

Money spent on advertising and marketing is a business expense, often a big one. You’ll be happy to learn that all the money you spend on advertising in tax deductible, which makes sense, as all advertising is related to business.

There are so many different things that you can deduct as a marketing or advertising expense. If you start to add it all up, it will quickly amount to a staggering figure. Here are some of the things you can potentially deduct as marketing expenses:

  • Business cards
  • Pamphlets
  • Paid advertisements in your local newspaper
  • Advertisements on billboards
  • Promotional materials and goods
  • Your company website expenses
  • Online marketing expenses

This means that any marketing expense can be deducted from your tax. Whether you want to make branded keychain holders to hand out at a corporate event, or print promotional pamphlets, these expenses will usually be tax deductible.

If you spend money on any online marketing-related software or services – such as an email newsletter service provider or pay per click advertising – it might also be worth investigating whether you can deduct these expenses. Perhaps you find you’re unable to deduct the expense for your email newsletter as computer software, but you can deduct it as an advertising or marketing expense instead.

Office Supplies

If you have an office for your small business, there’s a good chance you spend a lot of money each here on office supplies. Whether you’re buying printer ink, paper or pens. Even coffee, tea, milk and cookies can count if you regularly stock your office with these items for your employees.

No matter what industry you work in, your business will have admin, which means your business can deduct for office supplies. It’s easy to get so lost in deducting for expenses directly related to your industry, that you forget to deduct business expenses related to your admin.

Money spent on postage, shipping and delivery fees might be another hidden deduction you can get, which can help a lot if your business regularly makes use of such services.

Furniture and Equipment

Any equipment you purchase for your business (such as computers or printers) and even furniture can be deducted from your tax. There is, however, a catch here. You have the choice between either a full deduction for these items in the year you purchased them, or to depreciate them over a seven year period.

What you choose will depend on what’s best for your business. If you’re uncertain about which option is better and more applicable to your situation, it’s always best to consult your accountant about the matter.

Business-Related Education

If you spent money the past year on education for yourself, or any of your employees, you might just be eligible for a tax deduction. Expenses for seminars, workshops, classes and college programs can be seen as a business expense if it’s related to your industry.

To comply with safety regulations, businesses often have to send employees for first aid and safety training. If this is the case for your business, it’s good to know these forms of training will almost always be a tax deductible expense, as it is education related to your business.

The only important rule for deducting education as a business expense is that it has to be related to your business. You can’t deduct education expenses if you undertook it for personal reasons. If, for instance, you went for cooking classes or dog training lessons, you probably won’t be able to deduct this unless it’s related to your industry and it can benefit your business.

Cleaning Expenses

Cleaning is part of your business upkeep, so if you hired a professional cleaning company to clean at your business premises, there’s a good chance you can deduct it as a business expense. Regardless of if you hired a company to do mundane cleaning work at your office, or if you made use of a specialized cleaning service, cleaning is a tax deductible expense for your business, as it’s a necessary part of keeping your business premises hygienic and safe.

Some cleaning expenses that you may be able to deduct include:

  • Pressure washing your business premises both inside or out
  • Regular or high-rise window cleaning services
  • Carpet cleaning
  • Dry cleaning uniforms
  • Everyday cleaning services

Cleaning is an expense your business will incur every year, so adding it to your tax deductions can make a big difference.

Business-Related Supplies

Business supplies are one of the more obvious expenses, but it’s important to check all of your expenses in this area to make sure you’re getting all the deductions you can.

If you run a store, for instance, it’s obvious that you can deduct all the stock you bought in the past year as a business expense. At the same time, businesses that provide a service must also remember that all supplies they need to complete their service are business supplies. This could be building materials for a contracting firm, or cleaning supplies for a cleaning company.

However, there may be some hidden supplies that your business could possibly get deductions for. If you buy any cleaning supplies to clean your business premises, or if you buy uniforms, there’s a good chance you’ll be able to deduct these expenses.

Always Consult Your Accountant

To so stay within the legal bounds of tax deductions, it’s always best to get an expert opinion. Hiring an accountant can help you stay current with your taxes and avoid penalties for illicit tax deductions or practices. As an added benefit, the money you spend on financial services for your business (like your accountant) is also tax deductible!

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small business taz

How to Register Your Small Business for Tax?

If you recently started a small business, or your looking to do so, tax is an important subject that you simply can’t ignore. You must know how to register your small business for tax, or whether tax registration is even necessary in for your business.

A lot of small business owners feel intimidated by tax rules, so much so that it might deter some people from starting a business altogether. The idea of an already unstable income combined with uncertainty on how to fulfil tax obligations is a major sore point.

Don’t let the fear of tax get in your way of achieving something great. Tax can seem daunting, but it doesn’t have to be. There are a few simple ways in which you can make sure that your business is paying tax the right way. One of the first ways to start, is to register your business for tax in a way that suits your industry.

Does My Small Business Need to Pay Tax?

Paying tax won’t be an issue if your business doesn’t need to, so asking the question of whether you need to pay tax is a logical place to start. Unfortunately, no profitable small business is normally small enough to qualify for tax exemption.

Very few people expect a child running a lemonade stand to pay tax on their earnings. Realistically, these earnings are too small to amount to anything significant. Similarly, if someone bakes cookies and sells them from home, it may be more of a hobby than a serious business venture, and this is likely to reflect in the earnings.

You’ll know if your small business is more of a hobby than anything else. If you’re a hobbyist, chances you’ll end up spending all your earnings to support your hobby, meaning you won’t truly have a profit, so you’re not running a business, as all your earnings go back into your hobby rather than to contribute to your personal expenses.

It should be noted that the gap for earning without being liable to pay taxes is very narrow. Even if you’re working alone without any employees as a sole proprietorship, your earnings are be taxable. This is especially true if you’re a freelancer, contractor or any other kind of service provider and you earn most of your income through your business.

If your earnings are substantial enough that you can buy groceries, pay rent or afford to cover any of your personal expenses with your business earnings, you should consider yourself to be a small business owner, which means your business is tax liable.

Different Ways to Register Your Small Business for Tax

How you pay small business tax will depend on how you registered your business with the IRS. If you’re still in the process of starting your business, here are the different ways you can register:

  • Sole proprietorship: This is the simplest business structure. It’s easy to start, seeing as you don’t need any formal registration to run your business as a sole proprietor. As a sole proprietor, you’ll be entitled to all of your business earnings, with no legal distinction between yourself and your business. The benefit of running a sole proprietorship is that it’s simple and easy, the disadvantage is that you’ll also be liable for any debt incurred by your business, meaning your personal assets are at risk.
  • Partnership: Where two or more persons decided to start a business venture together, a business is considered to be a partnership. Depending on how a partnership is registered, business partners (like sole proprietors) can be responsible for all business losses, placing their personal assets at risk. This is known as a general partnership.
  • Limited liability company (LLC): Registering an LLC is a good option for many different business owners. The main benefit of an LLC is that the business owners or any shareholders aren’t liable for business debts or legal fees incurred, protecting personal assets. Additionally, business owners have the choice whether their LLC company should be taxed as a personal proprietor, partnership, S-corporation or C-corporation.
  • Corporation: Corporations are owned by stockholders and require a set structure. Corporations can fall in either one of two categories – S or C-corporations. It’s unlikely that you’ll register your new small business as a corporation, seeing as stockholders are required to elect a board of directors for a corporation. Although some small business owners register as the sole stockholder and appoint themselves as the a single-person board of directors, this business model doesn’t lend itself well to most small businesses that are just starting out.

As mentioned above, there are different ways in which you can register an LLC for tax. While registering an LLC to be taxed as a sole proprietorship or partnership won’t change the tax rules that your business falls under, there are two unique corporate tax regimes for LLC companies. Here’s some more information about registering your business as an S or C-corporation.

  • S-corporation: With the S-corporation model, the business entity pays no income tax. Instead, the tax liability of the business tax is distributed to the S shareholders on a personal income tax level. To qualify as an S-corporation, a business must be a domestic corporation (i.e. not foreign) and have no more than 100 shareholders. Additionally, an S-corporation may only have 1 class of shares. Certain businesses, such as financial corporations, are ineligible to be registered as S-corporations.
  • C-corporation: Unlike an S-corporation, C-corporations are taxed independently of their business owners. With a C-corporation, there’s no limit with regards to how many shareholders a company may have. Furthermore, rules regarding foreign shareholders are more relaxed. Because of this, most major corporate companies are taxed as C-corporations

For most new businesses, sole proprietorship is the most popular choice. It’s easy and doesn’t require any upfront investment in terms of registering your business. Once your business expands, however, registering it as an LLC to be taxed as sole proprietorship can be a good way to protect your personal assets.

Tax Rates for Different Small Businesses

Your taxable income will differ depending on how your business is registered for tax. Here are the business tax rates:

  • Sole proprietorships pay a 13.3% tax rate
  • Partnerships pay a 23.6% tax rate
  • S-Corporation pay a 26.9% tax rate
  • C-corporations pay a 17.5% tax rate

Keep in mind that for these tax rates to apply, your business must fall within the guidelines of a small business in your industry. For new businesses, this usually isn’t a problem. Most freelancers, contractors or even healthcare professionals with a healthcare practice quite easily fall into the specifications set for small businesses. Similarly, small building contract firms, plumbers or other service providers are usually eligible to qualify for small business tax rates.

Different Kinds of Small Business Taxes

Although it can be tempting to register your business as a sole proprietorship simply to take advantage of the 13.3% tax rate, there are other taxes that small business owners must pay, which can complicate your choice.

Depending on your business model, there are different kinds of tax you might have to pay such as:

  • Income tax
  • Employment/Payroll tax
  • Self-employment tax
  • Excise tax
  • Sales tax
  • Property tax

While all businesses are required to pay some form income tax, you won’t be liable to employment tax if you have no employees, not would you need to pay excise tax if you don’t sell eligible products such as cigarettes or liquor.

If you register your business as a sole proprietorship, you’ll usually have to pay self-employment tax. Self-employment tax covers tax expenses that are normally at least partially covered by your employer, such as Social Security and Medicare. You are liable to pay self-employment taxes if you’re self-employed and your net earnings in the past year were at least $400.

How to Pay Small Business Tax for the first time?

Whether you’re starting a new business, or you already have a young startup and you need to pay tax for the first time, consulting an accountant is the best way to help you stay on track with your tax obligations.

Although owning a sole proprietorship can simplify your taxes, there are various reasons why getting an accountant is still the best choice, especially when you’re just starting out.

Firstly, you may choose to register your business under a different tax regime than sole proprietorship, which can complicate your taxes. Even if you register as a partnership, tax rules can become daunting.

Secondly, your first year or two of business will be a busy time. You’ll need to learn a lot about your industry to succeed. You’re unlikely to have enough time to learn enough about filing your small business tax correctly, which could place you at risk for penalties for late payments and other mistakes.

Most importantly, consulting an accountant is a great way to get professional, trustworthy advice on how you should register your business for tax, giving you a head start on your small business tax.

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non biased perspective on for the people act

For the People Act of 2019 Bill HR1: Everything You Need to Know

Political issues are often at the forefront of controversy, debate and fiery disagreements where persons of different opinions are unable to reach a mutual conclusion. The For the People Act of 2019 Bill HR1, is no different. Instituted by the Democritc congressional majority, the bill focuses on fairness in political campaigning and voter rights.

Here’s what you need to know about HR1 from a non-biased perspective.

For the People Act Objectives

The aim of the For the People Act of 2019 is to improve the democratic values of America as a nation. This bill is intended to enhance the power of everyday people in politics and give more power to the larger American population.

The Democratic party claims that there are areas where the American people’s rights in political campaigns and electoral matters has previously been neglected. To resolve these concerns, the bill mainly focuses on political problems in three areas:

  • Campaign financing
  • Government ethics
  • Voting rights

By changing legislation in these three areas, the Democratic party hopes to distribute political power for candidates more fairly, allowing the broader general population more control over electoral outcomes.

For the People Act of 2019: Practical Implications

As stated, the HR1 bill handles the important issue of controlling power, with the aim of providing more power to American citizens. Here are some of the main ways in which the bill will change legislation to accomplish these goals.

Controlling Campaign Financing

By executing stricter regulations regarding how political candidates finance their campaigns, the For the People Act of 2019 aims to prevent financial wealth from governing political outcomes in our nation. Some of the legislation changes in bill regarding campaign finance include:

  • Requiring all organizations that are involved in electoral expenditure to disclose donors
  • Improving political spending transparency by requiring disclosure to voters regarding who paid for online political campaign advertisements
  • Strengthen oversight to ensure that campaign finance laws are strictly adhered to and heighten accountability in this area
  • Allowing ordinary Americans to support political campaigns through a donor-focused public financing system
  • Setting boundaries in place to restrict foreign companies from funding US elections
  • Requiring government contractors to disclose how many is spent for political purposes

Money is power, and this is exactly why the bill aims to regulate political campaign financing more carefully.

By restricting donations and allowing the broader public to not only politically, but also financially support campaigns, the Democratic party aims to restrict money from being the only source of power in America. The party believes that requiring political candidates to rely on “big money” donors creates a situation where some of the wealthiest Americans have too much power – all based on the sole premise of their wealth.

Changes to Government Ethics and Accountability

Government ethics is a vital in allowing the citizens of America to trust that governance of this country is in good hands. Changes that the new bill made to matters of government ethics and accountability include:

  • The ban of members of Congress to serve on corporate boards
  • Requiring presidential and vice-presidential candidates to disclose three years’ worth of tax returns
  • Establishment of rules of ethics binding on the Supreme Court

The changes in the new bill regarding government ethics and accountability are still under debate. Specifically, it is unclear whether Congress has the constitutional authority to impose some of the legislation regarding the Supreme Court, as the Supreme Court was established by the Constitution.

Changes to Voter Rights

Under the new bill, a few important changes have been made to voter rights. These changes include:

  • Granting previously convicted felons the right to vote
  • Automatic voter registration
  • Online voter registrations
  • The institution of voting day as a federal public holiday
  • Enhancing election security, particularly by using a paper-based voting system
  • Prohibit voter purges, thereby helping voters retain their right to vote
  • Limit partisan gerrymandering

Many of the changes are controversial. However, there are some legislation changes that could certainly help voters execute their right to vote more easily. The declaration of election day as a public holiday, for instance, could greatly help many voters who might otherwise not be able to vote due to work.

Additionally, while opinions of the matter may differ, there’s no doubt that increased voting rights for previously convicted felons will lead to a larger number of Americans voting in the coming elections.

Opposing Responses to the For the People Act

Some of the main concerns from opposition to the For the People Act of 2019, includes disputes regarding certain areas of legality when considering existing amendments and legislation.

Another concern raised by opposition is the concern that the changes included in the bill won’t successfully allow elections to be more democratic or free, but will instead allow for new ways in which electoral power can be manipulated.

When it comes to concerns regarding the bill being in conflict with amendments and the conflict in authorities, opposition parties brought up the following issues:

  • Suggesting that previously convicted felons should be undeniably granted the right to vote is in conflict with the 14th Amendment, which states that states have the authority to deny persons the right to vote based on “participation in rebellion and other crimes”.
  • HR1 is conflict with the 10th Amendment, as it grants a three-judge panel the authority to redraw congressional districts.

Opposition parties are concerned that the changes in HR1 are not only unconstitutional, but will impose on the rights Americans in certain ways. There is also concern that the legislation in the bill will lead to states having less control in electoral processes, which some say, is micro-managing the way in which elections are run.

Those opposing the bill don’t believe that disclosing to voters who paid for online political campaign ads. One of the main concerns opposing parties have with this change is that it will largely complicate the process of advertising political campaigns online. Especially the legal aspect of advertisements. Specifically, tech companies can also be held liable for displaying ads that were sponsored by an unauthorized person.

The increased legal risks involved with online campaign advertisements will lead to a significant cost increase. This cost increase will make online political ads less financially accessible going forward, as legal costs will become overly inflated. Opposing parties suggest that the irony of this legislation is that the significant costs involved in online political advertising will make it accessible to only the ultra-wealthy, achieving the opposite effect of what the bill is intended to do.

Many more concerns were raised regarding the bill. However, the main issues raised were all centered around whether all legislation contained in HR1 is constitutional and fair. Opposition concerns are that the widespread effects the bill will affect electoral freedom in ways that won’t inevitably produce elections that are more fair – ultimately leading to a situation where wealth and electoral power still aren’t mutually exclusive, perhaps even promoting a scenario where money drives voting power in the US.

The distribution of power, as well as conflicts of interest regarding electoral matters, isn’t one that will be resolved easily. Struggles for power and conflicts in opinions regarding how elections should be handled in order to be viewed as free and democratic, will continue to exist. For the best interest of all Americans, it’s important to be educated on proposed changes, as well as how changes will affect the electoral process.

For most Americans, however, their right to vote remains one of the most powerful and impactful ways they are able to control the situation in the US. By learning more about political disputes and the effects they have on the country, US citizens can choose to support political candidates with views that align with their own beliefs. The power of citizens to vote for ideals they believe in remains as an integral value which all Americans should gladly support and fight for, regardless whether they believe HR1 will facilitate this right.

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Tax Reform Changes and How They Affect Your Tax Return

Tax is a necessary but unpopular subject for most people. While most people are more than willing to pay tax, the tax system can seem daunting and hard to navigate, especially since it’s always changing. Just when you think you’re in the swing of things, the tax rules change again.

The 2018 tax reform bill, instituted by President Trump, was passed all the way back in late 2017. This new bill is called The Tax Cuts and Jobs Act, and under it many new rules will apply this tax season.

Although the bill was passed in late 2017, you’ll only see the effects of it in your income tax by this year. Overall the bill is meant to simplify and lower the tax you pay – of course, the efficacy of the bill in lowering your personal income taxes will, among other things, be determined by whether you know how the new system works to take advantage of the changes.

With income tax season upon us, learning about the recent tax changes is going to be an essential part of getting your tax done this year. Here’s what you’ll need to know to file your taxes in 2019.

Standard vs Itemized Deductions New Rules

In the past, itemized deductions were often the best way to go if you didn’t want to overpay on tax. However, in 2019 this probably won’t be the case. That’s because the amount for standard tax deductions is now approximately twice as much as it used to be.

If you’re a little confused as to what this means for you, let’s take a step back to distinguish between standard and itemized tax deductions.

Standard and itemized deductions are two different options that allow tax payers to reduce their amount of taxable income. As an overly basic example, if someone earns $24,000 annually and they are eligible for a tax deduction of $4000, they’re taxable income would be $20,000. So instead of being taxed on all their income, they’re being taxed as follows:

annual income – tax deduction = annual taxable income

There are two different ways in which tax payers can determine what tax deduction they’re eligible for:

  • Standard tax deductions
  • Itemized tax deductions

Standard tax deductions, as the name implies, is a standard or fixed amount that can be subtracted from your annual income to determine your taxable income. This amount is set by the government and will apply to every tax payer who chooses to make use of standard tax deductions.

The benefit of going with standard tax deductions is that it’s simple, less time-consuming and generally just a lot easier than itemized deductions. Although in some cases, especially before 2019, there was a good chance choosing standard tax deductions also meant you’d end up with a smaller tax deduction. This lead to a higher taxable income – so in the end, you’d be paying more tax.

Unlike standard tax deductions, itemized deductions can differ completely from one tax payer to another. Instead of paying a standard amount, you’ll need to keep track of all your tax deductible expenses in order to list them when you file your tax. If your tax deductible expenses add up to more than the standard tax deduction amount, then putting in the extra bookkeeping effort and tracking your tax deductible expenses will be well worthwhile.

Last year, approximately 70% of tax payers took the standard deduction route. This could be because tax payers found that the standard tax deduction allowed them to pay less tax. But it could also be an indication that most tax payers don’t want to keep track of tax deductible expenses.

The good news is that the 2019 Tax Reform Law will make it much less likely that tax payers will benefit from choosing to file tax with itemized deductions. This is because the standard tax deduction has been bumped up quite a bit. For comparison, here’s how much standard tax deductions have increased since 2017:

  • For single filers the standard deduction goes from $6350 to $12,000
  • For married couples filing jointly, the standard tax deduction goes up to $24,000 from $12,700 in previous years
  • If you’re 65 or older, you can expect to add another $1300-$1600 onto your standard deduction, depending on whether you’re married
  • For heads of households, the standard tax deduction is now $18,000

But while standard deductions have gone up, itemized deductions have gone down. This is because many expenses that were previously tax deductible are now limited for deductions.

Most notably, state and local taxes (called SALT for short) were seen as a tax deductible expense with no limit. This meant filers paying high taxes in their local state could file all of the taxes paid in the state or area where they lived as a tax deductible expense. Under the new tax rules, there’s a cap as to how much state and local taxes will be deductible, and that number is sitting on $10,000. Some examples of SALT taxes include:

  • Property tax
  • Local income tax
  • Sales tax

The states that will be hit most hard by this new change will be the high tax states such as California, New Jersey, New York and Maryland. Florida, along a few other states, doesn’t currently have state taxes, so this change currently isn’t relevant locally. Many other states have some state-specific income tax, but this is limited to dividends and income from investments.

Lower Tax Across All Income Tax Brackets

The new tax bill will also reduce the percentage of tax all tax payers across different income brackets will need to pay.  Many tax payers have already seen the change resulting from the lower tax to their monthly salaries, as a lower percentage of income is now deductible.

For the highest earners, 39.6% of income was deductible in previous years, whereas this year that number has reduced to 37%. Here’s how taxes are now reduced based on annual income:

  • Single filers earning between $38,701 and $82,500 will pay will go down 3%
  • Married tax payers filing jointly who earn between $77,401 and $165,000 also drops by 3%

Generally, this will lead to lower taxes for most households. However, it should be noted that you can no longer get personal exemptions, which could negatively affect some households.

Increase in Child Tax Credit

Child tax credit has been bumped up from $1000 to $2000 per qualifying child under the age of 17. Tax payers with higher incomes will now also be eligible for child tax credit.

Another benefit of the new tax bill is that tax payers will also be eligible for $500 tax credit for very other dependent they support. These dependents could include children over the age of 17, parents, siblings or even distant relatives. This will help tax payers who are supporting a large number of dependents to save quite a reasonable amount of tax.

Some other notable changes of the 2019 tax reform is a drop in corporate tax from 35% to 21%. Another change is that medical expenses will only be deductible if they exceed 7.5% of a tax payer’s adjusted gross income.

Get Professional Tax Advice

Navigating taxes for yourself and your business can be a difficult task. The current tax reform will be in practice from its inception in 2017 up until approximately 2025 for income tax. After this, the future of income tax is still uncertain, but there’s good possibility that things will change again.

If you’re a business owner, focusing on tax could cost you precious time you could be spending to build your business. Making use a professional accountant or bookkeeping firm can save you money, hassle and time on doing your tax, allowing you to focus on growing your business and income. Call Choice Accounting Solutions to learn more about how we can help you stay current with all your tax, without the need for you to waste time learning about new changes every tax season.

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7 Ways a Business Owner Should Spend Their Tax Refund

It’s always a happy day: You received that fat, juicy tax refund check in the mail or deposited into your bank account. Perhaps your refund was due to the impact of the “TCJA” (“Tax Cuts and Jobs Act” of 2017) – Did your business overpay during the year due to the reduction in tax rates to 21% for corporations? Or did your partnership perhaps overpay due to the 20% deduction for pass-through entities, the so-called “QBI” (Section 199A “Qualified Business Income”) deduction?

Twiddling your thumbs in glee ( … in your office … with the door closed), you nonetheless ponder within yourself: Eeny, meeny, miny, moe – spending tax refund, saving tax refund, spending tax refund, saving tax refund? The good news is, since it’s your tax refund, really, you can enjoy a twofer, and both spend and save it. The even better news is, there are so many great ways you can invest that “found money” to improve your business operations:

1. Pay down debt

Interest costs may be one of the larger or typical business owner expenses you frown upon. That nagging loan may not have the most favorable terms, or that company credit card is carrying an exorbitant interest rate. Use some (or all) of the refund to prop up your income statement by reducing interest expense, or to breathe a sigh of relief when lightening your debt load. This is a classic scenario where spending money today saves money tomorrow.

2. Focus on marketing

An area worthy of your attention might be your company’s advertising or marketing efforts. Maybe you always wanted to try that catchy radio ad for your business? Perhaps you prefer to focus on your online business channel and so would like to do better on the SEO front? Whatever the endeavor, you know that spending the refund on marketing is beneficial to your business and, as such, money well spent.

3. Invest in your employees

Along with your customers, employees are the lifeblood of your business. You could implement a paid family leave policy under the new regulations and also get a tax break on some of those payroll costs. Consider sending your key people to seminars or continuing education, which helps them develop personally and professionally while also improving the quality of their work and potential contributions to the company. The ways in which you can make your employees happy today and improve your bottom line tomorrow are almost endless.

4. Invest in yourself

Yes, go ahead, as the owner you deserve it. The avenues open to you are innumerable here, too. Perhaps upgrading to that business smartphone you’ve been longing after will also bolster your work productivity by leaps and bounds? How is your SEP IRA, and how is your Keogh Plan looking these days – could it use a little bit of a tax-deferred boost? If for no other reason, then, a happier boss is also a better boss, right?

5. Purchase machinery and equipment

As far as business owner expenses go, you could reduce your taxable income and invest in that machine the business so badly needs – the new tax law allows for full write-off of business equipment the year it is placed in service. Yes indeed, 100%. Maybe it’s finally time for that new pick-up truck your business can’t live without? The favorable bonus depreciation and Section 179 regulations surely add incentive to invest in your company’s capital equipment.

6. Opportunity awaits

Opportunity Zones, that is. If your business had a capital gain in some area during the year, following certain procedures under the new law, you could invest it in a so-called “QOF” (“Qualified Opportunity Fund”) to defer taxes on it. At the same time, your investment helps raise the overall community economic situation, which in turn can only benefit your business, too.

7. Save some, donate some

There’s nothing wrong with saving some of that refund, either. Be it for a rainy day, or that one outrageous expense nobody could possibly foresee, saving money is always one of the wise choices in life. Perhaps you need to bolster your cash position to apply for that new loan you need to expand the business? You may be looking to grow the business through acquisitions, and that extra cash could certainly come in handy.

The flip side of the coin might be considered donating some of your refund to a charitable organization or cause. Aside from the true spiritual satisfaction of participating in a good deed, this is similar in some ways to an intangible asset:
your donation or contribution also enhances goodwill in the community toward your business and helps build a foundation for an excellent reputation.

In so many different ways and sometimes even inadvertently, spending money today can also be an indirect route to either saving money or earning more money in the future.

Finally, despite all of the magnificent options for what to do with your refund, it behooves us to still remember this basic principle: While bringing on a sense of elation at receiving this large stash of “extra” money, it is not, actually, “extra” at all. It is really just the return of an interest-free loan given – to some extent voluntarily and unnecessarily – back to its rightful owner by the national government.

Of course, we’re human, and we feel like jumping with joy when this unexpected “gift” comes our way. In this regard, though, it’s always useful to remind ourselves with a lesson from Finance 101 ( … yes, that class way back when, the one where we’d wake up with a calculator clenched in our hand…): the time value of money. In general, money is worth more the sooner it is received (and invested).

Possessing an extra $100 routinely each month during the course of the year usually just can’t compare with the gratifying jolt of receiving $1,200 in one big, celebratory chunk. We’re just human. So, it’s reassuring and comforting to know that there are – really, truly – wonderful options to spend your tax refund in a manner that significantly improves your business operations.

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Beating Business Taxes and the Art of the Reserve

Business owners face a lot of uncertainty. Will your product or service be a hit? Have you targeted the right audience? How do you build better engagement with customers through social media? These are all common questions, but one of the most frequently asked, particularly by new business owners, is how much they should set aside for business taxes. Understanding and familiarity come with experience, but if you’re just starting out, it can be daunting and confusing.

More Big Companies Using Reserves

While we mentioned that larger companies weren’t all that dismayed by their tax bill, that’s not entirely true. In fact, it’s becoming less true with every passing year. Today, most large corporations than ever before are setting aside a reserve to meet their tax obligations, and more of them are saving larger amounts than they actually pay in taxes.

The reason? Increasing uncertainty surrounding what they’ll owe and when they’ll owe it. In fact, the difference between what’s collectively paid to the IRS and what’s collectively kept in corporate reserves is measured in the billions of dollars. As a small business owner, you won’t need to worry about that quite so much, but you will need to know a few things.

When Should You Pay?

When should you pay your taxes as a business owner? The answer, despite the many different interpretations out there, is quarterly. This is particularly true for those who don’t fall under the heading of a traditional small business owner. For instance, freelancers, consultants, subcontractors and the like.

These professional will benefit greatly from ensuring that they’re paying their tax bill on time, all the time. Of course, that still leaves the question of how much you should pay, but we’ll cover that momentarily. For now, suffice to say that you need to account for your taxes quarterly, particularly your employment taxes (Social Security and Medicare).

What Do You Mean By “Reserve”?

When it comes to paying business income taxes, it is important to realize that only the largest firms can afford to pay their tax bill all at one time. Most companies need to save for the event. As a small business owner, you’ll need to save for it, too. This term for this is a “reserve”. Essentially, it’s the portion of your earnings that you reserve in order to meet your tax liability with the IRS.

How Much Should My Reserve Be?

Sadly, there is no one size fits all answer here. Too much depends on the variables in the situation. Some advisors recommend that you take 10% of every single payment you receive and sock it away against the need to pay business taxes during your first year. Why only 10%? Is that enough to cover your actual tax bill? No, it’s not. However, it gives you the means to build a sort of nest egg against the day that you do start paying taxes.

Here’s how things work. New businesses generally aren’t profitable. If you don’t make a profit, you don’t owe any income taxes (no income equals no taxation). However, you still take 10% of your income and put it away against future needs.

The second year of your business is also unlikely to be profitable. However, you still keep putting away 10% of your earnings. This ensures that if you suddenly do turn a profit, you have the cash to pay what you owe Uncle Sam. If you don’t become profitable overnight, then you have additional cash reserves for the third year.

Each year that your business fails to turn a profit, you show a loss on your taxes and write everything off as a wash. You keep whatever monies came your way. Here’s the thing – if your business is not profitable for too many years, the IRS may decide to step in. They’ll declare your “company” a hobby instead of a business. Guess what happens then? All those write-offs that were perfectly legitimate when you were running a business must now be paid back to the government because you owe money. If you still have that nest egg built by saving 10% of everything, doing so will be much easier.

When Do You Reserve More?

You will eventually start to put more money into your reserve. One your business is running smoothly and things have settled a bit, it will be time for you to save more. For instance, once you’ve accounted for your operating expenses, you’ll need to begin reserving around 40% of your profit for tax purposes (15% for your self-employment tax, and the rest for income taxes). Of course, the actual amount reserved will depend on a couple of factors.

Your tax bracket is the most important. For instance, the 40% is only applicable if you’re in the 25% tax bracket. You could earn more or less, which will change that. You also need to consider whether or not your state requires you to pay state income tax. While you can claim that on your federal income taxes, you’ll still need to pay it out to the state, which means you need to save it in the first place.

What If You’re Profitable Off the Bat?

Some businesses are profitable immediately – freelancers, contractors and consultants come to mind. The 10% rule discussed previously will not apply here. Instead, you need to reserve around 30% of your income for business taxes. This ensures that you have ample money to cover both income taxes and self-employment taxes.

Finding the Right Path

Charting the right path for your business can be difficult, particularly if you’re new to the whole process. Working with a tax professional can help ensure that you’re able to save an ample amount of money for Uncle Sam while also making sure that you have enough for operating costs. As a note, make sure you’re working with a professional with plenty of experience helping small business owners reserve money for tax purposes.

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Hiring an Accountant Vs Preparing Your Business Taxes with TurboTax

When it comes to filing taxes, there has been one question that has been the bone of contention; to hire a certified public accountant to do your taxes for you or to buy a tax filing software program such as Turbo Tax?

One thing is for certain; taxes are costs in and of themselves. Therefore, if there is a way to automate the tax preparation and filing process, one should, by all means, consider it. And that is what tax filing software programs are purported to do.

However, even though these programs are quite straightforward to use, Turbo Tax and other tax filing software suffer from certain issues that are typical of any robot.

These issues become more evident when your financial situation starts becoming broader. At this point, it becomes wiser to spend extra and hire a professional.
This article will discuss why you should stop using tax software and hire a professional instead.

What You Need to Know About Tax Software

Whenever the tax conversation is taking place, people are usually either talking about tax planning or tax compliance.

Tax planning refers to the process of planning transactions way ahead before you actually do them. This allows you to make more thoughtful decisions that work towards minimizing the total amount of tax you need to pay.

On the other hand, tax compliance refers to the process of the actual preparation of your returns. Thus, it involves filling out your forms while making reports on transactions that have already happened.

And this is where the bone of contention actually lies. Tax preparation and filing software are designed for one job only; tax compliance. Thus, it will do the actual job but it will not help you make better decisions that will reduce the total amount you pay in taxes.

Consequently, as you broaden and diversify your financial profile, you will have to make increasingly complicated decisions. These decisions will be greatly affected by the amount of tax knowledge you will have, thus the dire need for financial planning. And that is why you need an accountant.

What You Should Know About Using an Accountant

A certified public accountant is the name given to a qualified accountant. For one to attain that title, they are required to pass certain numerous rigorous examinations in order for the government to grant them a license to work as a CPA. Nonetheless, CPAs in the United States are limited by geographical jurisdictions. Thus an accountant from one state cannot work in another.

CPAs, therefore, are tax experts who have intricate knowledge about taxes and the various laws affecting them. Knowledge combined with experience allows them to know what your business can do to reduce its tax costs.

This means that every business needs to seek regular advice from such a professional. However, when are the times that you absolutely need a professional?

Situations Where You Need an Accountant

1. You Find Tax Preparation and Filing too Complicated

As mentioned earlier, tax filing programs such as Turbo Tax allow you to learn how to perform your filing. While they are not that hard to use, you will need to invest your time so as to perform that task.

However, if tax filing is not your cup of tea or would rather focus your efforts on the aspects of your business that you are good at, then you are better of hiring an accountant to do that for you.

CPA for business taxes only makes for enhanced efficiency in your business since each process is going to be handled by someone who is good at it. Nonetheless, when you decide to hire a CPA, keep in mind that you will still be responsible for gathering all the data your tax professional needs to do your taxes.

2. It Is Still a New Business

If you just recently purchased your business from another person or it has been less than a year since you opened it, using an accountant is only wise.

This is because, unless you have experience running a similar business in the past, it is highly likely that there are tax laws and deduction rules that you do not know of. Hiring an accountant will ensure that you do not make costly mistakes that most entrepreneurs make when their business is still in its infancy.

3. The Status of Your Business Has Changed

There are certain complicated business moves that you can make that might warrant the need for a CPA for business taxes. One such move is a business state change.

For example, let us assume that you decided to convert your business from a sole proprietorship to a corporation. Part of this change means making sure that you properly file all the relevant paperwork. Moreover, you also need to calculate all your expenses and deductions for both types of business status to ensure that the business has no shortcomings.

This is easier said than done since you will be essentially dealing with new laws. Any errors that arise will result in fines and potential legal action. Getting an accountant to do this for you will ensure you avoid costly mistakes.

4. You Moved During the Year

As mentioned earlier, a CPA from one state is not usually able to practice in another state, and for good reason; tax laws vary between states. This means that if you move from one state to another, your tax situation is likely to get complicated.

This is why you need an accountant to help you sort your taxes out while determining how to divide your taxes payable or the refund owed between states.

5. You are Passing Through a Major Life Event

Marriage, getting kids, or divorce are life events that will impact your tax situation. If you just got married, how will you proceed to file your taxes? Will you do it separately or jointly? An accountant will help you understand the best way to go around that situation.

The same also applies to when you have kids. Another benefit of that bundle of joy is that it comes with certain tax deductions. But do you know the full extent of those deductions? A professional accountant will help you know what your options are so you can start enjoying some tax write-offs.

Divorce is an all-around messy situation. Which parent will claim the children as deductions? What rules govern taxes when it comes to child support and alimony? An accountant knows everything there is to know about these murky waters. They will help you navigate your way through them to ensure that you not only avoid problems with the law but to also ensure that you get the best deal possible.

6. You Want a Peaceful Life

Establishing a long term relationship with an accountant is one of the best life decisions you could make. You will never have to worry about your taxes being off, moreover, you will continue to enjoy their advice as your business continues growing. This means that all your ducks will be in a row at any single time. This not only helps your business but also enhances the quality of your life.

Tax filing software programs such as Turbo Tax can be beneficial when looking to save on filing costs. However, they do not give you insights that will help grow your business. An accountant not only takes care of all filing processes, but they also look into how they can help your business make better decisions so as to reduce those expenses. This results in major savings and growth in the long term.

Looking for an accountant to help you with your business taxes? Talk to Choice Accounting Solutions today and we will customize a solution for you and your business.

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2019 Tax Penalties Small Businesses Need To Avoid

As any business owner knows, tax season is filled with plenty of stress. With the tax code changing annually, it is difficult to keep up with the various changes. Because of the complexities associated with small business taxes, it is never smart to trust your fate with the IRS to an amateur who knows little about how to properly file tax returns for a business. After all, it just takes only one or two mistakes to not only find yourself owing more than you thought, but also possibly facing fines and a potential audit. Rather than spend the 2019 tax season facing these prospects, here are the most common tax penalties your business should avoid.

Late Filing Penalties

While filing your taxes may not be the most fun thing you will ever do in 2019, it is best to complete the task as soon as possible. If you procrastinate until the last minute, you may find yourself facing tight deadlines, which if not met can result in costly penalties. As an example, if your business is classified as an S Corporation or Partnership, the late filing penalty is done so as a dollar amount per-owner per-month. For 2019, this amount is $200 per owner for each month the tax returns are late, which as you can see can add up in a hurry. In addition to these penalties, it’s important to note that while April 15 is the standard tax filing deadline for individuals, small businesses have a deadline of March 15, so it’s best to get busy as soon as possible.

Estimated Tax Penalties

While it can be difficult to accurately estimate how much your business will owe in taxes, failing to so can prove even more costly in the long run. If you wind up underestimating what you owe, you’ll be facing additional interest charges from Uncle Sam. Based on current guidelines, which can be adjusted on a quarterly basis, this penalty stands at four percent. To avoid this problem, most tax experts recommend business owners simply estimate their 2019 taxes at the same amount they paid in 2018.

Failing to File W-2 Forms

Since each employee of your business must be issued a W-2 form, it is crucial you remember to file a form for each employee. If you fail to do so, expect the IRS to be standing around with their hand out, waiting for your contribution. As the current guidelines stand for 2019, if you file the elusive W-2 forms within 30 days of the January 31 deadline, your penalty will be $50 per W-2. However, if you file between February 1-August 17, the fine doubles to $100 per form. And if you really procrastinate and file the W-2 forms after August 17, be prepared to pay $260 per form. As you can see, it will be much simpler to work with a seasoned tax professional to make sure each and every employee on your roster has a W-2 form that has been filed.

Trust Fund Penalties

Considered one of the costliest penalties enforced by the IRS, trust fund penalties can be a tremendous headache to any small business owner. According to IRS guidelines, as a business owner you are required to deposit withholding amounts from your employees with the United States Treasury. If you fail to do so, even through no fault of your own, be prepared to pay significant penalties. In these situations, you will be held personally liable for all deposits that have not been made, up to 100 percent of the amount of the deposits. To avoid facing these substantial penalties that could possibly put you and your business through severe financial hardship, always verify these deposits are made correctly and on time, especially if you use a third-party payroll company.

Accuracy Penalties

While it stands to reason that the tax returns for your business must contain accurate information, there are additional IRS penalties that can be levied against you and your business, especially if the IRS determines the income and expenses on your returns are grossly underestimated based on a blatant disregard for its rules and regulations. To ensure Uncle Sam does not throw a temper tantrum at your expense, make sure you receive tax advice from a knowledgeable and experienced tax expert who understands the ins and outs of working with small businesses. Otherwise, expect to be hit with a 20 percent penalty for underpayment.

1099 Penalties

Just as it is important you file the necessary W-2 forms for your employees on time, you must also do the same for 1099 forms you use with any independent contractors to whom you have paid at least $600 over the past year. If you fail to file these forms in the proper manner, you can expect the same types of penalties you’ll incur for failing to file W-2 forms. In fact, the IRS is so concerned about your possibly forgetting to do so, they have made the fines the same for both W-2 and 1099 late filings. Therefore, if you remember from earlier, you can find yourself paying anywhere from $50-$260 per form that is not filed. To keep this from happening, be sure you remember all independent contractors with whom you did business over the past year, since forgetting them will take plenty of money out of your pocket.

Excessive Contribution Penalties

While it seems logical that the IRS will penalize you and your business for failing to contribute enough to employee retirement plans, you can also find yourself in trouble with Uncle Sam if you make excessive contributions. But while it seems as if you cannot win any way you go on this issue, all hope is not lost. Though the penalty for making excessive contributions to employee retirement funds is currently six percent, and will be applied to you each year until the error is corrected, getting solid tax advice from the outset of tax season will help you avoid this expensive mishap.

Tax Fraud Penalty

If there is one thing that will get Uncle Sam and the IRS mad at you in a hurry, it is having them believe you committed tax fraud. If this is the case, not only will you be facing harsh financial penalties, but also possible criminal charges against you and your business. Needless to say, this is one scenario you want to avoid at all costs. However, if the worst happens and the IRS determines you did indeed commit tax fraud, expect to be hit with a penalty of 75% on your tax return, which could result in thousands or even millions of extra dollars you will be expected to pay. Therefore, while it may seem as if everyone fudges a bit on their tax returns, it is best to file returns that are true and accurate to the best of your knowledge. Along with getting the best possible individual to prepare your taxes, always have the services of a tax attorney nearby as well. By doing so, you can be sure any and all questions you may have can get answered.

While it appears as if the IRS is simply waiting around for you to make one error after another on your taxes, the fact is virtually all these penalties can be avoided rather easily. By putting your trust in a seasoned tax professional, staying up-to-date on the latest changes, and being proactive throughout the year, the 2019 tax season can come and go without any unexpected and costly surprises.

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