Know about Small Business Taxes

3 Things You Need to Know about Small Business Taxes

Imagine coming up with a fantastic idea that becomes the foundation of your new business. It’s so incredible that it has the potential to turn your enterprise into one of the fastest-growing small businesses in the U.S.

But before that can happen, your business gets hit by an IRS audit. Or perhaps its budget is shrinking faster than expected.

You can avoid such problems by better understanding small business taxes. With this knowledge, you can reduce your odds of having the IRS on your back and even lower your tax bills.

This guide shares vital tax facts you need to know for your business, so read on.

Taxes

1. You Need an Employer Identification Number (EIN)

You need an EIN even if your business is part of the 81.7% of SMBs in the U.S. without an employee. Without this, you won’t be able to open a business bank account or apply for business licenses and permits. Neither will you be able to file business tax returns or pay your business’s federal and state taxes.

Luckily, getting an EIN is quick and free: you can do it online via the IRS website. After filling out the form, you’ll get your EIN immediately.

2. Different Business Structures Have Different Filing Deadlines

Your business’s specific structure dictates the forms you must use and when you must file its tax returns.

For example, if it’s a single-member LLC, you must use the Schedule C, Profit or Loss from Business Form and file it by April 15. The deadline is the same for corporations, but they must use Form 1120, U.S. Corporation Income Tax Return.

If it’s a partnership, you must use Form 1065, U.S. Return of Partnership Income, and file it by March 15. S corporations have the same deadline but must use Form 1120-S, U.S. Income Tax Return for an S Corporation.

The deadline may also change if it falls on a holiday or a weekend. Make sure you file on time to avoid trouble with the IRS.

3. You Can Claim Federal and Local Tax Incentives

You can lower your tax bills by securing federal and local tax incentives. These incentives can either be deductions or credits.

Tax deductions, also called tax write-offs, lower your taxable income, so they help you pay less in state and federal taxes. Examples of legal deductions are:

  • Utilities, like water, electricity, telephone, and trash bills
  • Insurance (e.g., property insurance, liability insurance, worker’s compensation)
  • Business property lease or rental payments
  • Office supplies and furniture
  • Equipment and machinery rent and depreciation

On the other hand, tax credits are dollar-for-dollar reductions on the taxes you owe.

A perfect example is the federal solar investment tax credit (ITC) for businesses. It lets you reduce your federal income tax liability by installing a solar energy system for your business. At the moment (and until 2032), the tax credit is 30% of eligible costs related to the installation.

Keep These Facts About Small Business Taxes in Mind

Remember: Small business taxes are legal responsibilities but can also be a financial burden.

So, to lighten that burden, always file your returns on time to avoid hefty penalties. And don’t forget to make all legal deductions and get all tax credits your business qualifies for. For more business and financial guides like this, check out our other latest articles!

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