What are Business Tax Services, and How they Work?
Business Taxrefers to taxes owed by firms to the authorities as a part of their operations. Adhering to tax regulations is implied for every business, be it a sole proprietor, limited liability firm, partnership, or corporation. Every business form has to comply with distinct tax consequences.
The business tax services offered by different firms involve:
- Calculating the firm’s yearly income.
- Deducting expenses.
- Arriving at the taxable income.
- Implementing deductions/ benefits/ etc., to reduce taxable income/ tax liability
These services aim to reduce the ultimate burden on the taxpayer. Also, it’s better to benefit from legal regulations to avoid or minimize taxes instead of evading them. Evasion is an illegal offense carrying penalties, fines, and imprisonment.
The Different Types of Business Tax Explained
Business taxes you must pay and their procedure get determined by your business form. The different Types of Business Tax are mentioned below:
The annual income tax return is a must for all firms except partnerships. It’s a pay-as-you-go tax, depending on income earned during the year. Tax withheld from employees goes to their income tax return.
You must pay taxes on income if it’s not withheld or your payments aren’t enough. Estimated taxes get paid regularly during the year.
Individuals working for themselves pay self-employment taxes that cover their social security benefits.
As an employer, business owners have specific responsibilities and tax payments to make, including social security, Medicare, Federal income tax withholding, Federal unemployment Taxes, etc.
If you manufacture or sell specific products, operate particular firms, or fall under other specifications, you are liable to pay excise taxes and forms.
Understanding Business Tax Rates
Firms in the US have to pay federal, state, and local taxes, depending on their business kind, region, etc. For example, the flat federal Business Tax Rates applicable to all corporations in the US is 21%. However, the availability of tax deductions, credits, and other benefits allows taxpayers to reduce their effective tax liability.
Further, state taxes also apply with wide variance in rates. While some have no corporation tax rates, others have up to 12%. Some states charge additional rates, including franchise, gross receipt taxes, etc. So firms must keep in contact with business tax servicesprofessionals to keep up-to-date with changing tax laws and rates.
The Ultimate Guide to Business Tax Deductions
Business Tax Deductions are write-offs, treated as expenses to deduct from taxable income. If the expense fits the IRS criteria of specifying tax deductions, you can lower your tax bill by applying it. Here are some of the small business tax deductions available for business owners.
Home Office Tax Deductions are available if your home is your principal business place or a regular and exclusive business area. You can avail of deductions either through simplified or standard methods.
Depreciation Tax Deductions are available if you spread the asset’s cost over the years you’ll use it. It’s a complex concept you should consider professional business tax services for.
Advertising and Promotion
A 100% deduction is available for advertising and promotion expenses, like sponsoring an event.
Premiums paid for business purposes, like property, worker compensation, etc., can be deducted.
The Ins and Outs of Home Office Tax Deductions
When you use your home for business operations, consider deducting a portion of your housing expenses against business income. This is known as home office tax deductions, availed in one of the following two ways:
Deduct $5 per square foot of your home for business operations (max. 300 square feet).
Track all home maintenance expenses and multiply them by the percentage of home area devoted to firm use.
You qualify for home tax deductions if:
- You use your home exclusively for business operations regularly and have identifiable work boundaries.
- Your home is your principal business place, with you spending most of your time here.
The Guide to Depreciation Tax Deductions
Depreciation applies to assets when you spread their cost over the years of their use instead of reducing their worth in a single hit. Here’s how taxpayers can avail of depreciation tax deductions:
- Determine the amount which will form the basis of depreciation calculation, including the asset’s cost, sales tax, installation expenses, etc.
- Opt for a depreciation method listed by IRS. Out of straight line, accelerated, and other ways, the most popular one is the Modified Accelerated Cost Recovery System (MACRS), which allows for accelerated depreciation over a set number of years based on the asset’s useful life.
- Decide the asset’s useful life.
- Divide the depreciable basis by the useful years to arrive at the annual depreciation expense.
- Avail of the depreciation tax deduction until the asset’s price gets covered.
Understanding Business Tax Credits
Business Tax Creditsare amounts deductible from the tax liability to reduce the tax burden. Instead of reducing the taxable income, these credits decrease taxes to pay to the authorities. The government offers tax credits to encourage firms to participate in that activity, for instance, research, building upgradation, etc.
Business tax credits are flexible. You can carry them forward and backward to reduce your future and previous tax liabilities. The tax credits are provided to targeted firms. For instance, Research and Development Creditis offered to companies investing a specific portion in research expenses. Further, Indian Employment Credit allows tax credits to employers hiring Native Americans.
A Beginner’s Guide to the R&D Tax Credit
The Research and Development Tax Credit, or Research and Experimentation Tax Credit, is a federal advantage. It allows firms to reduce their tax liabilities by performing operations like developing, designing, or improving products, processes, software, or formula. In addition, the government encourages taxpayers to invest in R&D and hire more employees, better technology, etc., for constant growth and innovation.
Numerous industries that qualify for this credit include aerospace, biotechnology, food and beverage, chemical processing, etc. The 26 USC § 41 prescribes this credit. To get an R&D credit claim, you must provide complete documentation supporting your expenses on research activities.
How to File Your Business Tax Return?
The Business Tax Filing process is a must for every firm to know. Since tax return filing differs for every company, learning a broader set of steps is critical to kickstart your tax filing journey.
Here are the critical steps recommended by business tax services providers to begin filing taxes:
● Gather your income/ expense records
Before filing tax forms, you must possess all your business income and expense displaying records. Whether you work on small business tax organizer software or keep manual books, gather your documents for accurate information.
● Know what forms to use
Every business must report its earnings and tax liabilities through prescribed forms based on their structure (for example, small businesses, LLCs, partnerships, etc.). Knowing the applicable conditions is critical to ensure you’re filing taxes correctly.
● Complete the form and submit it on/ before the deadlines
Once you know which forms to fill out, complete them with accurate details. Do not miss out or enter incorrect information anywhere; it can cost you hefty penalties.
Further, learn the deadlines of particular forms, which may vary for each.
Don’t Miss These Important Business Tax Deadlines
Here is an overview of the most crucial US Business Tax Deadlines. Bear in mind that these deadlines may vary depending on the business type, the state where it’s located, and the forms to file. Further, the dates may get extended due to weekends, holidays, etc., falling on the designated date.
● March 15
Tax returns of S-corporations and partnerships fall due on this date. If the firm requires an extension, they must complete form 7004 and submit it by this date.
● April 15
Sole proprietors and C-corporations must submit their federal income tax returns by this date. Again, an extension should be requested through form 7004 submitted by this date.
● September 15
Those S-corporations and partnerships who filed for an extension on March 15 should submit their return by September 15.
● October 15
It’s the due date for sole proprietors and C-corporations who filed for an extension on April 15.
Surviving a Business Tax Audit
Business Tax Audits conducted by the IRS can be nerve-wracking and stressful. However, it would help if you calmed down and followed the best practices mentioned below to prevent getting into trouble:
● Gain Insights into the Why’s of Auditing
Try reasoning and finding out the reasons you might be getting audited. IRS performs these audits based on computer screening, random sampling, or comparisons. Understanding why you caught their eye will help you prepare your records and ensure transparency.
● Know the Audit Type
IRS may conduct business tax audit as follows:
- Request more financial information via mail.
- Ask you to visit the local office.
- Meet at your business place for auditing.
If possible, try meeting at a local office with the auditor. However, if they push to come to your firm, enroll a CPA, business or personal tax services provider, or tax attorney professional.
● Organize Your Records
Ensure to gather, organize, and prepare your financial records neatly to present to the auditor.
● Appeal if Dissatisfied
You can file for appeal against the results of the IRS business tax audit. The procedure is complex, so hiring a professional associated business and tax service is always recommended.
A Guide to State Business Taxes
State Business Taxes differ from federal taxes and vary for each state. Even local municipalities may levy taxes on firms. Let’s take an overview of the US state and local business taxes:
● Income Taxes
Most states charge impose income taxes. However, the tax rates and applicability varies.
● Local Income Taxes
Municipalities may charge higher and numerous local income taxes to be assessed by the city or county.
● Excise Taxes
Like sales taxes, states may charge excise taxes on the number of items the firm sells. You can contact tax and business services providers for more details.
● Gross Receipts Tax
Gross receipts tax is also known as business license fees in some places and refers to a charge on total revenue. Usually, no deductions persist against these taxes, and the business tax rate varies between 1%-4%.
● Sales and Use Taxes
Sales tax applies as a percentage assessment on retail products and services prices. Use tax applies to buyers buying products out of state.
● Real Estate and Personal Property Taxes
These charges get collected by municipalities where your property is located.
● Local Business Licenses
A nominal business fee might be charged by localities, along with occupancy permits and other additional costs.
Let Us Handle Your Small Business Taxes
Small business taxes may seem straightforward but can get complex to handle without adequate knowledge. If you don’t bear the necessary expertise to undertake an accounting and tax services business planfor your firm, you should contact us to look after your needs.
Our team of professionals will understand your business and ensure timely return filing to avoid penalties. Further, we’ll help you take advantage of all available deductions and credits through our extensive business tax planning and preparation services.
Our certified team stands beside you to handle multiple operations, including:
- Tax and business advisory services
- Virtual bookkeeping services
- Payroll Preparation
- Business Information, etc.
So, let us handle your business plan for tax preparation service today.
Maximize Your Returns with Expert Business Tax Services
Managing business taxes become hassle-free and seamless with a bookkeeping and tax services business plan. However, if you’re incapable of preparing a tax plan that minimizes your burden, considering our expert tax services team should be your priority.
Our business tax accounting services follow a coordinated and holistic approach to managing your taxes. We consider every nook and cranny from where you can maximize your tax savings and reduce your liabilities.
Further, our associated business and tax service providers align your strategy with your business goals to maximize the tax potential. Our proactive tax planning enhances profitability, creates reinvestment opportunities, facilitates growth, and fund innovation. So, consider us the next time you need global business tax services.