Understanding the Type of Business you have
First, you need to understand where your business stands. Is it a sole proprietorship, a partnership, or a corporation type of business? Once you are clear about the position, you will know the right kind of tax to pay. Additionally, you will avoid paying unnecessary taxes. Knowing the precise taxes, you ought to pay will also assist you in keeping proper records, i.e., business finances and financial documents.
Knowing the Different Types of Taxes you have to pay
Apart from the common types of taxes, different businesses have diverse types of taxes. Knowing the exact tax to pay will ease you the struggle of paying unnecessary penalties that you are oblivious of. For instance, in some states like New York, businesses have to pay temporary disability insurance. If you have a large business that requires employees, it’s your obligation to pay the workers’ compensation and unemployment insurance.
You also need to know the type of forms you are required to file. For example, a sole proprietor business uses form 1040, while a partnership business uses form 1065 to report their business income to the IRS.
Therefore, you must know the federal license of your business in your state.
Calculate Your Income
You must know how to calculate your gross income so that you get your taxable income. Clearly understand the difference between net and gross income. If you do not know accounts, it is highly recommended that you hire a professional accountant or use tax accounting services.
Professional accountants offer numerous services that can assist you with all tax challenges. You can also employ certified accounting software. Such software is helpful if you have knowledge in accounting.
Other Important Steps
•Get employer Identification Number (EIN)
This form is acquired from the Internal Revenue Service (IRS). You need a valid Taxpayer Identification Number (TIN) to apply. You can apply for it online and get it fast.
•Acquire business and professional licenses
Only acquire a license that is required in your state. Remember, these licenses may have other separate taxes attached to them.
•Claim your tax credits
This claim will reduce the amount of tax you pay. But, you can only claim if you qualify.
•Claim the income reported to the IRS
The IRS has records of the 1099 forms that you get. They match the income you report against what they know you receive. Ensure that the income in the form matches what you report.
•Decide when and how you are going to pay your taxes.
The frequency of filling your tax returns depends on your state, but you decide how and when you will file the revenues. Don’t wait until the deadline. File your tax returns in advance.
As a business owner, you might get distracted or engaged in work and forget to file in time, getting yourself into more debt.
Tax Debt
Failing to meet deadlines could lead to penalties or other dire consequences. If this happens, seek legal help. Such situations are tricky. The IRS Fresh Start Initiative will give you a second chance to clear the tax debt.
If you have a revenue debt and are unable to pay, you can report the situation to the IRS as Currently Not Collectable. After convincing them that you cannot pay and guaranteeing them you will pay back, they will offer you more time to clear the tax debt.
Balancing your books will give you heads-up to avoid late fees or penalties. If you don’t qualify for the fresh start relief, acquire legal help to help you get a penalty relief.
It is advisable to keep your business in order. You wouldn’t wish to crumble your hard-earned business because of tax debts. If you can’t handle taxes due to workload, seek help. This way, you will have a sober mind as you focus your energy on other important components of your business.
