IRS Programs Offer Relief For Late-Filed International Information Returns
As the world has grown smaller, more taxpayers similar to John have found themselves subject to these international information return reporting rules. – Forbes – Taxes
Pennsylvania Business Owners Plead Guilty To Employment Tax Fraud
A Pennsylvania couple, Theodore Shearba and Jennifer Cemini, has pleaded guilty to conspiring to defraud the United States related to their efforts to evade paying employment taxes. – Forbes – Taxes
How To Use Tax Harvesting Before Year End To Lower Your Taxes
Everyone loves to save money on taxes. Not everyone know how to use tax loss harvesting to save money on taxes. We share how to lowere you taxes before year end. – Forbes – Taxes
WeWork’s Bankruptcy—Bad Management And Increased Working From Home
WeWork’s bankruptcy was driven by bad management and investments, but also by the post-pandemic increase in working from home. – Forbes – Taxes
IRS Spared As House Passes Temporary Funding Bill
The House has passed legislation to keep the federal government’s lights on, avoiding a shutdown. The bill now moves to the Senate, days ahead of the deadline. – Forbes – Taxes
Tim Scott’s Withdrawal Silences The GOP Presidential Campaign’s Tax Debate
At least you knew where Scott stood, something that can’t be said about his rivals. – Forbes – Taxes
Diversity And The Tax Bar
Sanessa Griffiths of Skadden, Arps, Slate, Meagher & Flom LLP discusses the lack of diversity in the tax bar and recommends ways to fix it. – Forbes – Taxes
What You Need to Know About Small Business Taxes
After many sleepless nights, months of planning, and years of hard work, you’re finally ready … it’s time to take the leap and start your small business!
Now, we know tax payments are probably the last thing you want to think about right now but trust us — filing small business taxes for the first time doesn’t have to be a nightmare. The sooner you start thinking about how to file small business taxes, the more time and money you’ll be able to save.
Ready to learn how to file your taxes and maximize those small business tax deductions? Let’s get started.
Step 1: Choose your small business structure.
One of the first decisions you need to make as a new small business owner is how you want to organize your business. Your legal business structure affects not only how your business operates, but also how you will pay your taxes.
Typically, small businesses fall under one of the following categories when filing taxes with the IRS.
Sole Proprietorship
A sole proprietorship is the most common business classification, and it consists of one owner who takes all the business’s profits as personal income. As the owner of a sole proprietorship, you are personally responsible for any business debts because, in the eyes of the IRS, you and the company are the same entity.
The good news? This makes filing your taxes fairly straightforward! All you need to do is use Schedule C (Form 1040) to report your business expenses when filing your personal tax return.
Partnership
Partnerships are very similar to sole proprietorships. Essentially, the IRS taxes these businesses the same way; however, partnerships can have as many owners as necessary. All owners are still personally liable for any business debts.
A partnership is what is called a pass-through tax entity that reports profits and losses on Form 1065. The partnership does not pay income taxes but instead passes the tax liability to the partners. The partners receive a Schedule K-1 from the partnership to report their share of the profits and losses on their Form 1040 and pay the taxes.
C corporations (C corps)
A C corporation is a business with an unlimited number of owners called shareholders. Each shareholder owns a piece of the company and profits are distributed among them as dividends. If the owner of a corporation actively works for the corporation, the owner generally would receive a salary which would be reported on a W-2. The corporation would pay the employer’s share of the social security and Medicare taxes as well as withhold taxes for the owner.
The IRS considers C corps and their shareholders as separate legal entities, which means the company is taxed on its profits and the shareholders are individually taxed when those profits are distributed. This is called a “double tax.” While double taxation may sound unpleasant, a corporation does pose some benefits. For instance, a C corp isn’t required to distribute all its profits to shareholders, and profits can be kept within the company to be used in other ways.
You may be thinking that C corps don’t seem like a feasible option for a small business, and this can be especially true when you are first starting out. However, if you envision your business quickly outgrowing the startup stage and becoming a well-known company, this structure may be a solid choice for you down the road.
S corporations (S corps)
S corporations are similar to partnerships in terms of how they work. The S Corp profits and losses are reported on a Form 1120-S, but the S Corporation does not pay income taxes. The shareholders receive Schedule K-1 from the S Corp pay the income taxes on their personal Form 1040.
Limited liability companies (LLCs)
Your ability to structure your company as an LLC is dependent on what state you live in — each state has different LLC requirements and regulations. Unlike S corps, LLCs can have an unlimited number of members (shareholders), and each member owns a certain percentage of the company. The IRS also treats an LLC differently based on how many members it has. If you are the sole owner of a single-member LLC, you will be taxed the same way as a sole proprietorship. If you are part of a multiple-member LLC, you can choose if you want to be taxed as a partnership or a C corp.
Step 2: Understand your business taxes.
So, how much does a business pay in taxes? It’s vital to understand what kind of taxes you will run into and how to adequately keep track of all your covered expenses to make sure you capitalize on those small business tax breaks. To help you out, we’ve listed some common taxes you might run into as a new small business owner.
1. Income Tax
We’ll ease into things with income tax. In the business world, this is a tax on your business’s profits. Unless your business is classified as a corporation, you file your business income tax with your personal tax return. Corporations pay income tax as well — remember that double tax we talked about — but the business files its own tax return in addition to the dividends that shareholders report on their personal tax returns.
2. Self-employment tax
If your business is classified as a sole proprietor, partnership, or LLC, you need to pay the self-employment tax. As a self-employed individual, your Medicare and Social Security contributions fall under this category. Since these taxes are not automatically withheld, it’s crucial that you budget for this each year. To make things a little easier, the IRS generally requires you to make estimated tax payments every quarter, which we will cover in step 3.
3. Excise Tax
If your business deals with certain special products or services (some examples being tobacco, alcohol, or gambling) you may owe an excise tax. This tax is required regardless of your business structure. Excise tax is often built into the price of the goods or services you provide, but you still need to make sure to pass these taxes along to the IRS every quarter using Form 720.
4. Sales tax
Most states impose their own sales tax, so make sure you are familiar with your state and local tax laws. Like excise taxes, sales tax is often built into the price of the product and business owners are liable for sending these tax payments to the IRS.
5. Property tax
If your business involves a brick-and-mortar location, don’t forget to factor in your property tax! This tax depends on regulations enacted by your city or county, so remember to brush up on your local laws to sufficiently budget for your small business property taxes.
Step 3: Keep good business tax records.
When does a small business have to pay taxes? And how much tax does a small business pay?
This is perhaps the most crucial step when it comes to making sure your business remains successful. Depending on your business structure and how you pay yourself from your business, you need to make sure you adequately budget for taxes.
If you own a sole proprietorship, partnership, or S corporation and you had tax liability for the prior year, you are responsible for making quarterly estimated tax payments to the IRS. To figure out how much estimated tax you will owe, you can use Form 1040-ES.
What kind of records do I need to keep for my small business tax return?
Keep small business receipts, invoices, bank statements, payroll records, fees, and any other documents relating to your income or potential tax credits and deductions.
The method you use for keeping good tax records is up to you. Just make sure you’re diligent! Keeping organized tax records is essential when it comes to preparing your tax returns and avoiding any underpayment penalties. Records will help you obtain a clearer understanding of how your business is performing and keep better track of your deductible expenses — ultimately saving you more money.
Step 4: Take advantage of small business tax deductions.
It’s time for everyone’s favorite section … let’s look at your small business tax deductions checklist.
Tax deductions for new businesses
Just starting out and not sure what kind of tax breaks your small business may qualify for? Here are some things to keep in mind.
Business startup deduction: The IRS allows new business owners to deduct up to $5,000 of business startup costs and $5,000 of organizational costs. To qualify for this deduction, your startup costs need to total $50,000 or less. If you do not qualify for the deduction, your startup costs can be amortized over 15 years, meaning you deduct a fixed amount of the expenses each year.
Common startup expenses you may deduct: Business insurance, real estate purchased for your business, any necessary business supplies, small business loan fees and professional fees, any business assets, and home office deductions.
Now you’re starting to see why good record keeping is an essential part of owning a small business. Keep track of those receipts!
Tax deductions for existing businesses
If your business has been around for a while, you aren’t out of luck when it comes to available tax breaks.
Qualified business income (QBI): If you are self-employed, make sure you take full advantage of your QBI deduction. The IRS allows you to deduct up to 20% of your qualified business income, and you can take this deduction in addition to your standard or itemized deductions. To claim this deduction, use Form 1040.
Common business expenses you may deduct: Property rent (as well as utilities and repairs), supplies or equipment purchased for your business, any business travel or vehicle expenses, business insurance costs, contract labor costs associated with independent contractors or freelancers, and wages paid to your employees.
Start your small business tax preparation
Now that you’re well-versed in how to pay your small business taxes, it’s time to put that newfound knowledge into practice. The best part? TaxAct® can help you file your small business taxes with ease.
Remember, your business structure is the key to determining how you will pay business taxes. Once you’ve determined your business structure, read up on your local tax laws and regulations to help you prepare an estimated tax budget. Don’t forget to stay organized. Keeping detailed records will help you minimize your business taxes and maximize your tax savings.
With the proper planning and preparation, you’ll be a small business tax pro in no time.
This article is for informational purposes only and not legal or financial advice.
All TaxAct offers, products and services are subject to applicable terms and conditions.
The post What You Need to Know About Small Business Taxes appeared first on TaxAct Blog.
– Tax Tips and Tax Planning Resources | TaxAct Blog
As 2024 Approaches, Are You Ready For The Corporate Transparency Act?
The CTA—which kicks in next year—requires reporting companies to file reports that identify a company’s beneficial owners with FinCEN. – Forbes – Taxes
Texas Man Sentenced To Prison For Tax-Related Fraud With A Job Scam Twist
A Texas man, Lamar “Cory” Thompson, has been sentenced to 30 months in prison for mail fraud related to a scheme to fraudulently obtain tax refunds from the IRS. – Forbes – Taxes
The Tax Man Comes For Fast Fashion
Nana Ama Sarfo looks at a number of tax proposals targeting fast fashion. – Forbes – Taxes
How to Fill Out Form W-4 to Keep More Money in Your Pocket
At a glance:
Form W-4 tells your employer how much tax to withhold from your paycheck.
You should adjust your W-4 after major life events such as getting married or having a child.
If you want a larger refund you can choose to withhold extra money from your paychecks.
Let’s face it, the Form W-4 pre-2020 was confusing. You had to claim allowances on your W-4 to determine your tax withholding amount, but most people didn’t really know what these numbers meant.
The current W-4 has done away with all that. Now, it’s much more straightforward and designed to give taxpayers the most accurate withholding. Ideally, this means you’re more likely to have less taxes taken out of your paycheck and more money in your pocket without owing a huge tax bill at the end of the year.
Ready to learn how to fill out a W-4? Let’s dive right in.
What is a W-4 tax form?
Your W-4 tells your employer how much federal income tax to withhold from your wages every pay period. Using the information you provided when filling out the form, your employer will determine how much tax to withhold from your paycheck.
After filing your tax return, a smart financial move is to double check your Form W-4. Ensuring you have the right amount of tax withheld from your paycheck can make a big difference in your tax outcome next year.
If you have too much federal income tax withheld, you may receive a huge tax refund. While this may sound like a good thing, getting huge tax refunds every year likely means you’re not making the best use of your paycheck. Instead of receiving a big tax refund, you could be getting that money sooner by having less tax withheld from your salary.
In contrast, if you have too little tax withheld, you could face a large tax bill when you file. Additional penalties and interest could tack onto that total as well if you didn’t pay enough of your tax liability throughout the year.
So how can we find a happy medium? When it comes to your personal finances, it’s important to take the time to learn about tax forms, like Form W-4, to help you make the most of your money.
To help you navigate the process, below are the answers to some frequently asked questions about Form W-4.
Who needs to fill out a W-4 form and why?
The IRS requires every employee to fill out a W-4 because it tells your employer how much income tax to withhold from your paycheck.
Why does my employer withhold so much from my paycheck?
The truth is your employer has no discretion over how much tax is withheld from your pay.
Every employer is required to withhold the amount that corresponds with the IRS withholding tables. The table is broken down based on your pay, the pay period (i.e. weekly, bi-weekly, semi-monthly), and the information on the Form W-4 you completed.
What happened to withholding allowance numbers on the W-4?
Prior to 2020, a withholding allowance was a number on your W-4 that your employer used to determine how much federal and state income tax to withhold from your paycheck. The more allowances you claimed on your Form W-4, the less income tax would be withheld from each paycheck.
Beginning in 2020, the IRS completely reworked Form W-4 to accommodate some major tax law changes. Because of a large increase to the standard deduction, there is no longer a need for personal exemptions on a W-4. Keep reading for more information on how to control how much withholding is taken out of your paycheck.
How do I fill out Form W-4?
The W-4 requires basic personal information, like your name, address, and Social Security number. Previously, the number of allowances and your tax filing status determined how much income tax was withheld from your pay.
Now, it’s much simpler than that. The new Form W-4 provides taxpayers with different sections to fill out depending on your tax situation (listed below). When filling out the form, you only need to complete the steps that apply to you.
Step 1: Personal Information
Step 2: Multiple Jobs or Spouse Works
Step 3: Claim Dependents
Step 4 (optional): Other Adjustments
Step 5: Sign and Date
You can submit a new W-4 whenever you like. It’s always a good idea to review and adjust your W-4 withholding after major life events that may impact your tax liability such as getting married, having a child, or receiving a big raise.
What should I claim on my W-4?
You no longer need to claim allowances on your W-4, but there is a section for claiming dependents in Step 3. This section allows you to list all of your dependents, making sure the appropriate Child Tax Credit amount is deducted from your withholding. Fill out this section if you are the sole earner, or if you are married filing jointly and have the highest-paying job. If you are single with multiple jobs, you would also only need to fill out this section for your highest-paying job.
Is there a W-4 calculator I can use to help me fill out my form?
Yes! Whether you want more money in your refund or more money in your paychecks, you can use the TaxAct withholding calculator to see how changes to your W-4 will impact your take-home pay.
How do I change my withholding on the W-4?
The new W-4 form was designed to create the most accurate withholding for all taxpayers. If you want your tax bill (or your tax refund amount) to be as close to zero as possible, it’s important you are claiming the correct number of dependents in Step 3 and including precise numbers for any additional income (such as retirement income, self-employment income, etc. earned by you or your spouse) in Steps 2 and 4.
If you itemize your deductions, don’t forget to account for any additional deductions in Step 4 of your W-4 form.
If you are someone who likes receiving a bigger tax refund with your annual return, changing your W-4 to get more money with your refund is easy. You can choose what additional amount, if any, you want withheld from each paycheck on line 4(c) of the W-4 form.
Is it better to have more earned income withheld, just to be safe?
There are some downsides to letting the IRS hold your money for a year or more. For one, processing returns can take a while, and you could have had that money in your bank account sooner.
You wouldn’t overpay your mortgage, electric bill, or any other expense by thousands of dollars just so you could get a big refund at the end of the year, right? Yet, we have normalized doing this with our taxable income.
Think about it this way: When you elect to withhold additional tax from your paychecks, you are essentially giving the government an interest-free loan . . . but would they ever allow you to borrow money without charging interest?
On the other hand, many people choose to have extra withholding from each paycheck because it feels safer than the risk of receiving an unexpected tax bill at the end of the tax year. If withholding extra gives you peace of mind, then do what works for your unique financial situation.
Plus, if you are someone who struggles with saving, withholding extra money from your paychecks and getting it all back in one lump sum at the end of the year can be a helpful way to save your cash without the temptation to spend it all immediately.
Whatever you choose, it’s nice to know you are in control of your money!
How do I get a copy of my W-4 form?
To receive a copy of your W-4 form, just reach out to your human resources or payroll department. It’s always a good idea to review and adjust your W-4 withholding after major life events that may impact your tax liability such as getting married, having a child, or receiving a big raise.
How do I file a new Form W-4?
Your payroll or HR department can supply a new form for you to fill out. Many employers provide an easy way to change your W-4 online, or you can also print the form directly from the IRS website. The IRS W-4 form also provides a Multiple Jobs Worksheet and a Deductions Worksheet to help you calculate an accurate withholding if these circumstances apply to you.
Once you complete the form, don’t send it to the IRS — just give it to your payroll or human resources department to file.
This article is for informational purposes only and not legal or financial advice.
The post How to Fill Out Form W-4 to Keep More Money in Your Pocket appeared first on TaxAct Blog.
– Tax Tips and Tax Planning Resources | TaxAct Blog