A Brief Small Business Taxation Guide: What You Should Know

Just like any business, small businesses must pay taxes. However, there are some benefits afforded to small businesses in particular... Here’s what you should know! First, before that: if you are looking for a comprehensive tax preparation guide for artists, entrepreneurs, or the self-employed, do not hesitate to contact the Agro Accounting CPA experts, as we excel at rendering top-quality accounting and income tax services.

Choose your legal structure wisely

If you own an unincorporated business, you are a sole proprietor, also known as a small business owner. This is common for most people in the United States, accounting for 23 million people. Sole proprietorship taxes are convenient since you only have to report your income, profits or losses, and overhead charges on IRS Form 1040 plus Schedule C. It is strongly advised to choose your business’ tax structure as a sole proprietorship, S corporation (“corp”), C corp or LLC.

Use tax deductions to reduce your taxes

As a small business owner, you have to expand your financial resources! Your business expenses include business travel, business utilities, donations, medical insurance, depreciation, and much more. Luckily, you can claim small business tax reduction benefits to minimize your taxes owed.

Pay taxes in three-month intervals

If you owe taxes of $1,000 or more, you must pay taxes quarterly. However, unlike a salaried person (employee) whose employer withholds some amount of taxes with every paycheck, sole proprietors, freelancers, and small business owners assume the full tax “self-withholding” burden. Also, if you are paying taxes every three months, you don’t have to submit an obscene amount of taxes together at the end of the tax year.

List of business taxes you might have to pay:

• Self-employment tax
• Excise tax
• Sales tax
• Payroll tax
• Property tax

Conclusion

Having an expert accountant by your side can help you throughout your small business’ growth. They can help you avoid common pitfalls that you might overlook. Heed the points mentioned above or hire income tax services for the self-employed and small business owners from Agro Accounting CPA. We can help you with accounting services, tax deduction tactics, and more.

What Happens If You Fail to Pay Your Taxes

The Internal Revenue Service will not let you off the hook if you fail to pay your taxes! You can avoid a situation like this if you pay your taxes timely throughout the year instead of waiting for April 15. Generally, employees have taxes withheld from their salaries. However, freelancers or self-employed people can pay taxes every three months directly to the IRS.

If you need more information on income taxes, consult with the Agro Accounting CPA experts or hire our income tax services for the self-employed. Here, let’s start with the possible outcomes of not paying your taxes on time:

Pay a Penalty Fee

Are you failing to file your taxes or failing to pay your taxes? There’s a huge difference between the two.

If you fail to file your taxes by the due date, there will be a penalty of 5% of the tax owed for up to five months. If you take longer than 60 days after the due date, then you will get hit with a minimum penalty of $210 or 100% of the tax owed, whichever is lower. For example, if the tax owed is $210 or less, the penalty will be the same as the total tax amount due. If the tax amount exceeds $210, the penalty will be at least $210.

Warning Letters from the IRS

Nobody wants mail from the Internal Revenue Service. It's not like the IRS doesn't give you a chance - it gives many. But before taking any strict legal action, they send you a warning letter.

The best thing to do after getting a letter is to reach out to the IRS office. The authorities might look kindly on you as you admit your carelessness, unlike those who have been lining their cat’s litter box with the IRS’ letters. You may get a chance to negotiate a payment plan or even reduce the total tax amount due.

Can’t Apply for a Loan

If you fail to pay your income taxes, you might get into a lot of trouble. You may not be able to apply for a home loan, business loan, or vehicle loan. Banks or lenders need to see copies of your most recent tax returns before giving you a loan. Nobody gives a loan to someone who isn't consistent with filing or paying their tax returns.

The IRS Can Seize Your Property

In Publication 594, the IRS has made it clear that the agency can sell your car or property in order to clear out your outstanding tax in some scenarios. The publication also states that if there is money left after the sale of your property, you will get a refund of it.

To learn more about taxes or to obtain a tax preparation guide for artists and entrepreneurs, feel free to connect with Agro Accounting CPA.