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Important Tax Rules That Small Businesses Should Know

Taxes can be one of the biggest headaches for small business owners. And we don’t mean the money going out the door — we mean the various tax rules, forms and eligibility requirements that small businesses have to deal with to remain on the IRS’s good side.

The penalties for not knowing and abiding by common tax rules can be steep. There are the direct costs – namely fines and penalties – that can hinder your ability to remain financially solvent. There’s also the hidden cost of not knowing the ins and outs of the tax code: missing out on various deductions that could give you a little more financial breathing room.

To help keep you and your company in good standing with the IRS, here are several important tax rules that pertain to small businesses.

Vital Tax Rules You Should Know

Taxes You Might Be Responsible For

One thing you certainly don’t want to avoid is paying all of the various taxes that you owe throughout the year. Among the various types of taxes that small businesses often have to pay:

  • Sales tax: In most states, you’ll be responsible for collecting sales taxes from your customers and reporting/paying those taxes to the proper state and local authorities.
  • Excise tax: Similarly, states and local governments might also charge excise taxes, usually accounted for within the item’s price, rather than taken out separately like sales tax.
  • Property tax: If you own a physical location, you’ll need to pay property taxes to the appropriate authorities.
  • Payroll taxes: If you employ anyone, you must deal with payroll taxes, which include withholdings for federal income tax, federal and state unemployment, and Social Security and Medicare.
  • Self-employment taxes: If you’re self-employed, you have to pay a 15.3% FICA tax, though half of that is deductible on your Form 1040. (Businesses that employ people pay half this tax, while employees pay the other.)

Quarterly Tax Payments

Many Americans will only ever pay taxes once a year. But the self-employed, sole proprietors, partners and S corps have to remit taxes much more often – four times more often, to be specific. Businesses with these structures that expect to owe at least $1,000 annually must pay “estimate” tax payments every quarter. Meanwhile, corporations must make these payments if they expect to owe as little as $500 within a year.

And while you don’t have to get the quarterly payments exactly right, if you fail to pay at least 90% of what’s owed, your business could be subject to penalties.

Entertainment Expenses Are (Mostly) Off the Table Now

Entertaining clients has been a pillar of doing business for literally centuries. And for a long time, the U.S. tax code treated it as such, allowing companies to deduct anything from rounds of golf to baseball tickets.

But the 2018 Tax Cuts and Jobs Act hacked away at most of the allowances, allowing businesses to only deduct costs from meals and beverages. And on the food front, how much you’re able to deduct depends on the setting.

For instance, if you’re eating on your own while traveling for work or taking clients out to a meal, the business can deduct just 50% of the costs. But you can deduct 100% of the costs of dinner for employees working late at the office, or for a catered company event.

Let Us Keep Up With the Latest Tax Rules

The tax professionals at McManamon & Co. specialize in small to midsize businesses operating across a broad spectrum of industries. Why does that matter? Because we’re always up to date on every last inch of the tax code as it pertains to businesses like yours, so we’re able to help you maximize tax deductions and credits.

Don’t go it alone. Call McManamon at 440.892.8900, or contact us online, today!

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