It’s often said that one of the things you cannot escape in life is taxes. They’re omnipresent and everywhere – with no end in sight to them, they’re a certainty for anyone running a small business. But, of course, there’s a lot that goes into them, too. Accountants exist for a good reason, after all. But you can also learn them so you can navigate them as efficiently and as effectively as possible. That’s why in this article, we’re going to be going through ten things you may not know about small business taxes so that you can be prepared next time tax season rolls around.
Taxes Are Possibly Lower
When taxes are lower, everyone feels a need to rejoice! Having to pay less is something that no one will turn down, after all. But did you know that taxes might be lower now? The Tax Cuts and Jobs Act lowered tax rates for small businesses overall. C Corporations have a 21% flat tax rate. In comparison, owners of pass-through entities can celebrate the fact that there’s a 20% qualified business income deduction on top of the already potentially lower tax rate.
Most Small Businesses Use Paid Preparers
It’s been found in a study by the National Federation of Independent Business that 88% of small businesses use paid preparers to complete their taxes. This rate is most likely even higher now, thanks to the added complexity of the Tax Cuts and Jobs Act. However, this statistic doesn’t account for other types of taxes, including personal estimated taxes and payroll taxes. So it’s not known precisely how many people get the help of preparers for those.
Tax Preparation Costs are Greater
One of the most significant costs that are tied to taxes is those that go towards preparing them and sending them off. This can include the costs of preparers and accountants, as their role in making your life easier comes at a price. Due to the Tax Cuts and Jobs Act, it’s likely that many preparers have raised their costs in response to this, meaning you’ll be spending more out of your pocket. You’ll also need to use them more often to get more advice on how to approach taxes, so your costs will most likely be even higher.
Entertainment Deductions Are No Longer Allowed
As of 2017, you can no longer add entertainment-related expenses to your tax deductions. This is specifically referring to entertainment expenses in regards to customers or clients. So, there will be no more splurging on fancy events to keep your customers or clients occupied and happy – however, there is a silver lining. Food and beverage costs can still be deducted – by about 50% – as long as they’re paid for separately and either the owner or an employee is present at the event.
There Are Still Fringe Benefit Incentives
One of the most significant parts about paying small business taxes to the IRS is the small business tax benefits that you can achieve for fringe benefits. These are still intact for the most part – you’re still able to get deductions or credits for health insurance, and you’re still able to account for retirement plan contributions, alongside ongoing wages for family or medical leave. However, a couple of tax breaks did recently end for employers. These include transportation-related fringe benefits and costs associated with an employee relocation.
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The IRS Knows All
It’s commonplace for people running small businesses to think that they can skip around and avoid paying taxes for various things, hoping that they’ll be able to pull a fast one on the IRS. However, this isn’t easy to do, as the IRS now has state-of-the-art computers that can clock in everything you do, keeping track of all the transactions you make so that you aren’t able to get anything from them. So trying to avoid paying your taxes is a fool’s errand – you’re better off paying them and spending that bit of money to prevent a headache down the line!
Penalties and Interest Can Be Costly
Taxes are incredibly complicated, and it’s easy to make some mistakes on them. Of course, it happens to everyone – you accidentally enter the wrong number or forget to account for a deduction you’ve been meaning to. Nonetheless, while these mistakes can be small, their consequences can be severe. If you end up underpaying your taxes, you’ll end up in a world of hurt, as you can be charged additional interest and penalties for getting your taxes lowered more than they should be.
Taxes Take A Lot of Time
This may seem obvious to anyone who has ever done their taxes, but taxes can take up a great deal of your time. Even if you use a preparer, things can take up a good chunk of your days. Aspects of taxes like making payments for them, keeping records of every expense you make, and having meetings with preparers can add up in hours. It’s been found by the Small Business Administration that taxes can take upwards of 32 hours annually!
Related: Tax Planning for Marketing Agencies
Plenty of Information is Available to Small Businesses
The world of taxes can be confusing and difficult to navigate. It can be hard to find your ground when everything around you is complicated, messy, and crucial to get things right. It’s even harder to find accurate tax information, especially when everything has inaccurate information. Fortunately, the IRS has a great deal of information to help small business owners comply with their taxes. The IRS’s Small Business and Self-Employed Center is a good start, for instance!
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There’s an Unknown Future for Taxes
Tax laws are constantly changing and shifting, and there isn’t much stability for taxes at any point in time. The future isn’t exactly known and depends on many things, from politics to economic fluctuations. All that is known is that taxes will still be there no matter what, so your best bet is to be as prepared as you can be for them!
Now that you know more about small business taxes, you can be more equipped for them in the future. Gone will be the days of struggling with your taxes and the days of thriving and succeeding!