Whether your business is big or small, you have 20 employees or none, you are required to pay the right taxes at the right time. Understanding your tax obligations are an important part of your business formation. How you are structured and whom you employ will impact your taxes, and any mistakes or omissions will not go unnoticed by the Internal Revenue Service (IRS) or the Colorado Department of Revenue (CDOR). A small business attorney can help you prevent liability issues, maximize your deductions, and represent you in the event of an audit or penalty. This post will cover five things every small business owner should know about business tax.
1. Your Business Structure Determines Your Tax Responsibility
“Small business” is not your only category. There are numerous structures your small business may fall under, and each has its own set of tax liabilities. Sole proprietorship, partnership, s corporation, and c corporation are just a few of these structures, and they all have their own advantages and limitations. The two most common state and local tax requirements for your small business are income taxes and employment taxes. Your business structure determines your state income tax responsibility.
Colorado has specific laws regarding employment taxes and insurance, including workers’ compensation, unemployment, and temporary disability. Visit the CDOR Taxation Division to learn more about state income and employment tax obligations. In addition to these, the IRS requires that you pay self-employment tax, estimated tax, and excise tax, also depending on your business structure. With each types of business tax comes its own set of rules, eligibility, and forms to file. Your small business attorney will keep you compliant with all state and federal tax laws.
2. You Can Choose Your Tax Year
You may assume a calendar year equals a tax year; however, you have the ability to choose a fiscal tax year instead if you need your annual accounting period to end in a month other than December. Or, if you are a new business, you can choose a short tax year since you were not in existence for the entire tax year. You also have the option of changing your tax period with permission from the IRS.
3. There are More Deductions Than You Think
Your goal is to maximize your profits, which can be challenging amid rent, utilities, employee salaries, materials, and many other operational costs. As a small business owner, you may be able to deduct many more expenses than you realize. Some common business deductions include supplies, furniture, and equipment. Some lesser known deductions include startup expenses (e.g. research, training, advertising), mileage, meals, software, subscriptions, insurance premiums, child labor, phone bill, retirement contributions, and more. Just be sure to have solid documentation and record keeping.
4. You Have to Make Estimated Payments
As a small business owner, you are responsible for making quarterly estimated tax payments throughout the year. Planning for the coming year by estimating what you owe and having the funds designated for payment will ensure you are ready for tax time every time. If you fail to submit the taxes you owe, you are subject to penalties. Even after conducting the necessary research and consulting a tax expert, new small business owners are prone to unintentional tax mistakes. A small business attorney will assist you if you find yourself in tax trouble.
5. You are Required to Pay Self-Employment Tax
As a small business owner, you are responsible for your portion of self-employment tax – social security and Medicare taxes – and the half that would otherwise be paid by an employer. You can lessen the blow at tax time by making advance deductions. Furthermore, half of your self-employment tax can be claimed as an income tax deduction.
Consulting the right business professionals will ensure that your tax return is accurate and your deductions are maximized. There are many resources for small businesses offered by the Colorado Department of Revenue, including its Revenue Online website. With an account, you have access to your tax records and a variety of services, including filing or amending a return, changing your address, filing a protest, and viewing account balances and payments.
If you need business tax advice, contact me, Elizabeth Lewis, at the Law Office of E.C. Lewis, P.C., home of your Denver Business Lawyer. Phone: 720-258-6647. Email: firstname.lastname@example.org
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Law Office of E.C. Lewis, P.C.
Your Denver Business Attorney
501 S. Cherry St., Suite 1100
Denver, CO 80246
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