As a small business owner, it is imperative that you understand how to properly file federal taxes. This will help you avoid trouble with the IRS and help your business remain financially stable. With so many rules and so much information to take into consideration, it is understandable that many business owners will have tax questions. The following information will address some of the most commonly asked questions small business owners have about tax laws and business forms.
1. Question: What is a Deduction?
A deduction is any business expense that can potentially decrease your overall profits. Deductions can be difficult to comprehend, and there has always been confusion about what exactly qualifies as a deduction. From an IRS perspective, if your expense was helpful, appropriate, and necessary, it may be classified as a deduction. For example, if you own a bakery and you purchase a new oven, this expense can more than likely be classified as a deduction since it is appropriate and necessary for your business. The product or service you purchase cannot be used for personal use if you wish to claim it as a deduction. For instance, if your oven is also used to prepare personal meals, it does not count as a deduction.
2. Question: Can I Take a Home Office Deduction?
If you work from home, your office should be used exclusively for business purposes. If you can claim your office as a deduction, you can deduct expenses for rent, utilities, insurance payments, and even renovations or remodels. Claiming an office as a deduction is easier said than done, and there are stringent requirements your office must meet. If you use your office or the equipment within your home office for recreational or non-business purposes, it cannot be considered a deduction.
3. Question: I Want to Start My Own Business—What Should I Know About Taxes?
Starting a business can be an exciting, yet daunting task in terms of taxation. By keeping and maintaining accurate and honest records of business-related expenditures, you can drastically reduce your chances of running into trouble with the Internal Revenue Service. When a business owner fails to compile accurate records, he or she may accidentally use this information to file tax returns. If your tax return contains false, vague, or unusual information, you may be selected for an audit. If you do not feel comfortable keeping track of your own records, it may be wise to hire a professional record keeper.
4. Question: Can I Claim My Vehicle?
If your vehicle is used for business purposes, the answer is yes. There are two methods for calculating your vehicle deduction. The standard mileage method allows you to deduct a certain amount for each business mile that you drive. The actual expense method allows you to deduct the actual expenses you incur from operating your car on a yearly basis, in addition to depreciation. Despite the fact that this allows you to factor in maintenance and repair costs, the majority of business owners prefer the standard mileage method because it requires you to keep fewer records.
5. Question: What Forms Should I Fill Out?
As a business owner, there will be certain tax forms you will be required to fill out. If you withhold taxes from your employees’ wages, you will be required to submit Form 941, or the Quarterly Federal Tax Return. You must also file a W-2 for each employee that you withhold wages from. If you need an Employer Identification Number (EIN), you should fill out form SS-4. Form 940 will allow you to report any Federal Unemployment Tax Act (FUTA) expenses that you have incurred. For a comprehensive overview of business tax laws, you should download Publication 15, which explains the tax responsibilities you will have as an employer.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.