Businesses are required by the federal law to pay taxes on time and accurately. To begin with; tax refers to the levy paid by a taxpayer and it is imposed by the government. All businesses have an obligation to pay taxes to the government.
Filing for taxes for a small business depends on whether the business is a sole proprietorship or a corporation. The different forms of business requires different taxes for the expenses incurred as well as the income. Taxable income is calculated to determine the amount of tax to be paid.
· Collection of records
These includes all business records stating all the earnings and the expenses of the business. Every business should keep records of calculation on earnings and expenses to make easier while paying taxes. You can use a computer program or spreadsheets to make your calculations prior to paying the tax.
· Get the right form for your business
It is advisable to determine the best form of IRS tax form. Choosing the right form to report earnings depends on the how your business operates. Most small businesses uses sole proprietorship. This allows you to report your expenses and incomes on a Schedule C attached to your personal income tax return. A form 1120 is prepared for return tax if the form of business is corporate.
· Fill out your form
You fill out your schedule 2 or form 1120 depending on your business type. Schedule C is a simple way to file taxes for businesses. It is only two pages long and all expenses are listed on it.
After completing the form, you deduct the expenses from the earnings of the business to get the net profit or loss. This amount is then transferred to the personal income tax form and included with other items on personal income tax.
If you use Form 1120, you also calculate the taxable income for your business as with the Schedule C. Other details required for this form may not apply with a small business. This form is separate from your personal income tax.
· Obey deadlines
Filing taxes usually has deadlines. Using a Schedule C, makes it part of Form 1040 with the same filing deadline. The deadline is usually April 15th of every year.
Filing a Form 1120 means that you do so by 15th day of the third month after the close of the tax year. For most people paying taxes, this is usually 15th of March. This form is not sent to the IRS together with personal income tax return.
Following the above steps makes it easy for you to file taxes for small businesses you own.
· Every business owner should pay taxes as required by law; tax is involuntary and inevitable
· Money from tax is used by the government to provide various services for the same people who contribute it.
· Government varies tax rates for businesses and also has different types of taxes for people in different levels of earnings.
· Tax system of a country reflects the values of the current political power in the country.
· The amount collected through taxation is greater than the amount the government can spend.
· Taxation transfers wealth to the government from households and businesses.
· Taxation helps to maximize the welfare of the economy.
There are different types of taxations that you need to understand and register for your business. This is important to ensure that your business pays all the taxes as required by the law. U.S tax system is strict and requires all businesses to pay their taxes before the stipulated deadlines.
While computing your net business income on which tax is composed, some factors need to be considered:
· Self-employment taxes
This works with sole proprietors where the income is the amount on which self-employment tax is paid. Partnerships and corporations follow different rules.
· Net operating losses
Sometimes businesses make losses where the expenses exceed the total earnings. The loss can be deducted against other income the business may have. It can also be carried forward to offset incomes in future years.
You can minimize your income tax bill through tax credits. These credits are directly subtracted from the tax. However, claiming the credits comes with a set of rules which need to be followed for a successful claim.
To ensure your business is safe and will remain operational, pay your taxes for small businesses on time and avoid tax evasion.
E WATERS