Seven tax considerations for new businesses is our blog topic this month. Did you start a business in 2021? As we enter tax season, we see a lot of new owners make several common mistakes. Here’s seven tax considerations for new businesses to keep you out of hot water with the IRS.
1. Yes, You Have to File Taxes.
Above all, you’ll need to understand how rules changes if you’re new to running a business. As an individual, you only need to file taxes if your gross income exceeds $12,550. That number drops to a net income of $400 as a business owner. You also have to carefully monitor all your income and expenses, much more than as an employee.
2. And Yes, You May Have to Pay Quarterly Estimated Taxes.
When you work for someone else, they take takes out of your paycheck on your behalf. So, when you work for yourself, the IRS expects you to estimate your taxes and submit them quarterly. Failing to do so sets you up for underpayment penalties.
3. Claim Start Up Costs.
Even if you run your business from your kitchen table, it cost money to get set up. You can deduct anything you needed to pay to get up and running, including research and training (Subject to a $5K Limitation ). You can claim everything from marketing, website creation, office furniture and supplies, vehicle costs, and more.
4. The IRS Sees You As ‘Fresh Meat.’
Unfortunately, having your own business raises all sorts of interest from the IRS. Getting audited isn’t the end of the world, IF you’ve carefully followed directions on expenses and deductions with receipts. Keeping up with all the changes year to year can get overwhelming. And if you make a mistake, it can get expensive really quick.
5. Don’t Mix Business and Personal Finances.
If you’ve just started out, you may not have thought about having a separate business checking account yet. But this is one of the first things you should do as a new business owner. Even if you barely edge over that $400 net income line, have a separate account for business income and expenses. This makes things easier to separate for filing purposes and cleaner during any audits.
6. Self-Employed? Don’t Expect a Refund.
Most employees look forward to late spring every year when they receive a windfall as part of their tax return. We’ll leave for another conversation as to why you should minimize tax refunds that basically serve as free loans for the government. Most small businesses serve as a pass-through entity for the owner’s income. Owners pay taxes on that income as part of their individual taxes without any withholdings to absorb the additional taxes.
7. Learn from this Return.
Even with a tax specialist helping you, expect a few lessons on how to improve next year. Look closely at your return. Go over it with a tax expert and make sure you understand any penalties or additional deductions for next year. We like to say it’s not rocket science. But, when you’re just starting out, it can really feel like it!
Did you start a business in 2021? If you feel unsure on what to organize or how to get started, relax! We hope that our Seven Tax Considerations for New Businesses blog helped a little.
Still confused? Our, our experienced tax professionals can help you minimize any taxes you owe and ensure you comply with all applicable laws. Complete our online form or call us today at 724-216-5180 to learn more.
