Six Simple Tax Questions for the Small Business Owner
Plenty of individuals are comfortable doing their own taxes. That is not the case with new small business owners. It is easy to assume an accountant will handle everything, but it helps to have a basic understanding of small business tax. If you are considering starting your own small business, you can add tax questions to your list of queries for your accountant. Here are some questions to get you started:
Who do I owe?
You will be putting together multiple tax returns. There will be federal and state taxes to file. However, there may be jurisdictional taxes, as in county, district, etc. Do not forget property taxes, sales tax and payroll related taxes.
What are deductible expenses?
Do not spend a cent on your business before you have an answer to this one. You probably have heard that certain spending decisions can be deducted at a later date. Did you think to learn which ones? Anything that is helpful and appropriate for your business may be deductible, but of course speak with your accountant. Anything that is necessary to keep your business running smoothly is usually acceptable.
What are current expenses?
These are the everyday costs of keeping your business going. They are usually deducted from your business’s total income in the year you incur them. This includes office supplies, rent and electricity.
What are capitol expenses?
Anything that will help generate revenue in subsequent years is a capital expense. A desk, a copier or a car will be used over three, five or seven years. The exact period of usefulness is determined by the IRS.
What is the difference between independent contractors and employees?
Employees work for you. Independent contractors work for themselves. That is the quick answer. Independent contractors have their own business. You are one of their clients. This means you do not have to withhold taxes or offer benefits. The opposite is true for your employees. You must be very careful with this area. New Jersey and the IRS heavily favor interpreting people who conduct work for you as employees. Be sure to consult your accountant and business law attorney in this area.
How can I avoid making simple tax mistakes?
Start keeping track of receipts and expenses immediately. Do not mix personal spending with business spending. Avoid bookkeeping if you do not understand it. Keep track of deductible expenses. Most of all, be sure to choose an accountant who works with small businesses to handle your taxes. This is not something that you should be doing on your own.
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