Categorized | Taxes

FINANCE, TAXES, AND BANKING 2.6. Taxes

You know the saying about death and taxes. Although taxes may be certain, they can be confusing. They also can be reduced. So there are two things you, as the owner of your business, should master about taxes:

1. What taxes do you owe? Business taxes are more complex and involved than personal taxes―largely because you are taxed on profits, which is a far different thing than cash. These laws change all the time and impact every aspect of your business. Be careful! You may not only be responsible for business taxes, but sales taxes as well! This is particularly important if you are selling over the Internet―you may have to charge sales tax for some of your online customers!

2. How can you pay the taxes you really owe? You thought I was going to say, how can you pay the smallest amount in taxes, right? You can always pay very little in taxes―or none at all―but you’ll be thrown behind bars. In reality, the question is how much tax must you pay. You don’t want to pay more than that and you certainly don’t want to pay less. This is a complicated question that has everything to do with the way you have financed your business, how you have structured your business, the way you account for money flows, how you extract money from the business for your personal enrichment, and the way you operate. You reduce or increase your taxes by many of the financial and operating decisions you make everyday, so it behooves you to think carefully about the tax impact of what you do.

2.6.1. Tax Information for Businesses

http://www.irs.gov/businesses/index.html

You might as well start at the source! The Internal Revenue Service makes available all information regarding taxes that you owe the federal government, the regulations you have to follow, and how to file. They package much of this information in easily digestible format in their “Tax Information for Businesses” section of their Web site. This information applies to all businesses: small to gigantic, so you’ll want to bookmark specific resources on the site:

Small Business and Self-Employed One-Stop Resource

These pages offer a broad range of resources across federal and state agencies, as well as industry- and profession-specific information for self-employed individuals and businesses with employees. Individual resources include:

  • Business expenses―what qualifies as a business expense on your returns.
  • Online learning and educational resources―to introduce and teach you about taxes and tax regulations.
  • Self-employed individuals―the basics of a self-employment business and how to figure your tax obligations.
  • Businesses with employees―your tax responsibilities if you’re employing people other than yourself.

Tax Information for Corporations

If you have formed a corporation or LLC, you are almost certainly going to rely on tax professionals to do your taxes. There are, however, entrepreneurs running small corporations that invest much of their time in preparing their own taxes. If you own or run a start-up corporation, the IRS offers comprehensive information for corporate taxpayers about pre-filing initiatives, e-file information, appeals programs, “S” Corporations, technical resources, and other relevant corporate taxation topics.

2.6.2. TaxAnalysts

http://www.taxanalysts.com

Tax Analysts is a nonprofit, nonpartisan organization that publishes in-depth tax information for Federal, State, and International tax regulations. It is also lobbies for fair and transparent tax laws.

The information resources it offers are not free but can be purchased at a reasonable cost. They offer daily, weekly, monthly, and quarterly publications that provide news and analysis on tax policy, practice, administration, regulation, and legislation. They also provide forums for debate on a wide range of tax issues―but you’re probably going to be too busy with your business to want to engage in lengthy online discussions of tax laws!

Much of the material is designed for tax professional and accountants, so the site has limited value if you’re farming out your taxes to a professional. But, again, taxes impact most of the financial and accounting decisions you make and, as head of your company, you’re responsible for these decisions. Tax Analysts is the most comprehensive means you have for staying current on your tax obligations and how they impact your business.

2.6.3. Entrepreneur Magazine Online Tax Center

http://www.entrepreneur.com/tax

We’ve seen plenty of Entrepreneur Magazine Online resources in this book and their Tax Center meets the same high caliber of completeness and value. Designed specifically for small businesses, the Tax Center provides a comprehensive set of links to Federal tax forms, State tax forms, a glossary of tax terms, and a useful set of frequently asked questions. The site also includes practical and far-reaching articles:

  • Top Tax Write-Offs That Could Get You In Trouble with the IRS
  • Tips for Lowering Business Taxes
  • Smart Tax Moves
  • The ABCs of Online Sales Tax

2.6.4. U.S. Chamber of Commerce Small Business Center Tax Toolkit

http://www.uschambersmallbusinessnation.com/toolkits

The U.S. Chamber of Commerce has put together a comprehensive set of articles, advice, links, and other resources to help you understand and manage your taxes. The site covers Federal, State, payroll, and sales tax obligations, how to plan for them, and how to pay them. This site is your best introduction to tax planning, i.e., structuring business decisions to minimize the taxes you owe. The site also includes links to all the tax forms you’ll need for paying and filing taxes.

Their discussions of Federal tax obligations include the following topics:

  • The Basics of Tax Planning

“Tax planning is a process of looking at various tax options in order to determine when, whether, and how to conduct business and personal transactions so that taxes are eliminated or reduced. As an individual taxpayer, and as a business owner, you will often have the option of completing a taxable transaction by more than one method. The courts strongly back your right to choose the course of action that will result in the lowest legal tax liability.”

  • Defining Your Trade or Business

“According to the IRS, to constitute a trade or business, a profit motive must be present (though you may in fact have experienced a loss for the year) and some type of economic activity must be conducted.”

  • Tax Year and Accounting Methods
  • Business Deductions
  • Capital Assets and Depreciation

“Almost every business must invest in some major equipment, vehicles, machinery, or furniture in order to operate. Some businesses will require assets such as land, a building, patents, or franchise rights. Major assets that will be used in your business for more than a year are known as “capital assets” and are subject to special treatment under the tax laws. Most importantly, you generally cannot deduct the entire cost of acquiring such an asset in the year you acquire it.”

  • Net profit, loss, and self-employment taxes
  • Claiming Tax Credits

Dealing with the IRS

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