6 Business Tax Law Tips for Colorado Entrepreneurs

6 Business Tax Law Tips for Colorado Entrepreneurs

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Companies of all sizes prefer to hang on to as much of their revenue as possible. For Colorado entrepreneurs running small businesses, doing so can be critical to the financial health of their company. And, while the government certainly isn’t trying to hurt your business by assessing taxes, it’s not going to go out of its way to help your business either. That’s why you need to have a good understanding of business tax law and a process for ensuring you abide by it.

What are Business Taxes?

The Internal Revenue Service (IRS) oversees the collection of five general types of taxes:

  • Income Tax – All businesses except partnerships must file an annual income tax return.
  • Estimated Taxes – You must pay taxes on income, including self-employment tax, by making regular payments of estimated tax during the year.
  • Self-Employment Tax – Self-employment tax is a Social Security and Medicare tax primarily for individuals who work for themselves.
  • Employment Taxes – If you have employees there are taxes you must pay and forms you must file.
  • Excise Tax – Excise taxes only apply to certain types of businesses based on the products they produce, services they offer, or the equipment, facilities, or products they use.

The Colorado Department of Revenue also collects taxes from certain types of companies. Ultimately, even for the smallest of Denver small businesses, business tax law can be very complex and confusing. Consequently, it is well worth the time and effort to seek advice from a business attorney in Colorado.

How to Stay on the Right Side of Business Tax Law

Follow these tips to ensure that your taxes are easy to complete, accurate, and as low as possible:

Stay organized all year
For most small businesses, one of the worst things about tax time is getting prepared to file a return. Where are the receipts you need? Did you remember to record all your expenses? Did you log your mileage correctly? Rather than scrambling to answer all those questions at the last minute, set aside some time every month to keep your finances in order. And, start the fiscal year by setting up a filing system to make it easy to store and retrieve documents, charge slips, etc.

Keep personal and business finances separate
As a Colorado entrepreneur and small business owner, it may be tempting to let your personal and business finances commingle. However, doing so increases the odds that you will violate some aspect of business tax law and find yourself in trouble with the IRS.

Consider using independent contractors
If you are a Colorado entrepreneur who is just getting a business off the ground, it can be expensive to hire employees. In many cases, it makes more sense to work with independent contractors since you don’t have to pay payroll taxes or provide benefits. Just be sure you know how to correctly classify the people who perform work for you. There are big fines for misclassifying people so while you think you may save money by hiring someone as a contractor, you may have to pay for it in the end!

Use accounting software and a payroll tax system
Manually tracking expenses and handling payroll using spreadsheets is a recipe for disaster. Every year, many business are fined for making mistakes in these areas. Invest in the appropriate software packages and let them do the mental heavy lifting for you to ensure you aren’t breaking any business tax laws. Yes, you should double-check the numbers these systems generate, but generally speaking, if the information you put in was accurate, the information coming out will be accurate.

Take the home office deduction if applicable
If you run your Denver small business out of your home, you may be able to use the home office deduction to claim a portion of expenses, such as your mortgage interest, insurance, and utilities. Both homeowners and renters can claim of this deduction.

File on time
Be sure to file your tax return and pay any taxes due on time. If you fail to do so, not only will you have to pay the taxes owed, you will have to pay a penalty as well. To feel confident that your return has been received, consider filing electronically.

Cross Business Tax Law Off Your List

As a Colorado entrepreneur, you have plenty of things you would rather be focused on than business tax law. By following the tips above, you can ensure that you are in compliance and paying the minimum taxes required of you. Then you can turn your attention to more pressing business-building matters.

If you have questions about the interpretation of business tax law as it affects your company, contact me, Elizabeth Lewis, at the Law Office of E.C. Lewis, P.C., home of your Denver Small Business Lawyer. Phone: 720-258-6647. Email: elizabeth.lewis@eclewis.com

Contact Us Today

Law Office of E.C. Lewis, P.C.
Your Denver Business Attorney
501 S. Cherry St., Suite 1100
Denver, CO 80264
720-258-6647
Elizabeth.Lewis@eclewis.com

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Tax Relief for Small Business:  Fact or Fiction?

Tax Relief for Small Business: Fact or Fiction?

Whether news of the new federal tax plan leaves you feeling hopeful, doubtful, or simply left out, there are important implications for all small business owners. Taxes are commonly cited as the number one concern of small business owners in the United States. Under the proposed new tax bill, the maximum tax rate for small businesses, categorized as pass-throughs, was reduced. However, there are varying rates, deductions, and special exclusions for sole proprietors, partnerships, s-corporations, c-corporations, and limited liability companies. And, there are as many opinions about how or if this new plan will benefit the majority of small businesses. A small business attorney will help you find experts who can help you in small business tax law. This post will discuss who is meant to benefit from the new tax plan, who is potentially left out, and what you can do to ensure your own compliance and maximum tax benefits.

Who does the New Tax Plan Benefit?

A November 3, 2017 CNBC article calls small business a vital and often overlooked engine of economic growth. Responsible for 63 percent of net new jobs from 2010 to 2016, according to the U.S. Small Business Administration, small businesses have the ability to create jobs, fill gaps in the marketplace, and strengthen the communities they serve. A unified or comprehensive tax reform, which provides relief to small businesses, would enable this “engine of economic growth” to run more smoothly.

Meant as a template for legislative committees of tax-writing, the Unified Framework for Fixing Our Broken Tax Code was published by the Committee on Ways and Means in September 2017. These are some of the changes that impact small businesses.

  • The maximum tax rate applied to small and family-owned businesses conducted as sole proprietorships, partnerships and S corporations will be 25 percent.
  • The corporate tax rate will be reduced to 20 percent.
  • Numerous special exclusions and deductions for businesses will be eliminated.
  • Deductions for net expenses by c-corporations will be limited.

Who is Overlooked in the New Tax Plan?

Because the typical small business pays taxes individually by the owner, some business analysts contend that most will not benefit from the new tax plan. The LA Times further reports that approximately 86 percent of pass-through/small businesses already pay no more than 25 percent under the individual code, so there would be no tax cut benefit for them. The National Federation of Independent Businesses president, Juanita Duggan, is cited as saying that, while the proposed bill leaves too many small businesses behind, nearly all small businesses would benefit from some tax relief under this bill. A small business attorney can review and make recommendations about your business structure through the life of your business so that you are not among the overlooked.

What Can You Do to Ensure Compliance and Maximum Benefits?

For small business owners who are either just starting out, well-established, or relocating to Colorado, it is important to consult or work with experts in order to avoid costly compliance mistakes and to maximize all of the tax benefits to which you are legally entitled. The IRS provides a virtual tax center for the self-employed and small businesses where you can find information on preparing, filing, and paying taxes. Your small business attorney will also help you to get organized and keep accurate records to make every tax season as stress-free as possible.

If you need business advice, contact me, Elizabeth Lewis, at the Law Office of E.C. Lewis, P.C., home of your Denver Small Business Lawyer. Phone: 720-258-6647. Email: elizabeth.lewis@eclewis.com

Contact Us Today

Law Office of E.C. Lewis, P.C.
Your Denver Business Attorney
501 S. Cherry St., Suite 1100
Denver, CO 80264
720-258-6647
Elizabeth.Lewis@eclewis.com

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Preparing for Business Taxes from Day One

Preparing for Business Taxes from Day One

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: elizabeth.lewis@eclewis.com

Contact Us Today

Law Office of E.C. Lewis, P.C.
Your Denver Business Attorney
501 S. Cherry St., Suite 1100
Denver, CO 80264
720-258-6647
Elizabeth.Lewis@eclewis.com

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10 Ways to De-Stress Your Business Tax Time

10 Ways to De-Stress Your Business Tax Time

As a small business owner, tax time can be very stressful, especially if you wait until the last minute to try to organize a year’s worth of paperwork. In order to ease the stress and avoid potential trouble with the Colorado Department of Revenue or Internal Revenue Service (IRS), start thinking about tax time as all year round. There are steps you can take throughout the year to make a big difference in your total income and tax liability when it comes time to file. A small business attorney can give you tax advice on the right business structure and paying the right taxes on time as well as provide representation in the event of an audit or penalty. This post will cover 10 keys to getting organized and keeping accurate records to eliminate the anxiety of tax season.

Getting Your Taxes Organized

  1. Appoint time each month to reconcile your receipts, bank slips, statements, invoices, etc. By dedicating just a couple of hours every month to basic bookkeeping, you will avoid dealing with 12 months’ worth of accumulation all at once. You can make a list of steps to be prepared and add important deadlines, dates, and digital reminders to your calendar.
  2. Create a simple filing system for your paperwork. Keep everything in one place, and clearly label or name your folders. Both paper and electronic bookkeeping can be organized by month and type of record.
  3. Separate business and personal finances. Not only will separate bank and credit card accounts for your business make it easier to manage your books, it will enable you to produce legitimate business documents in the event of an audit.
  4. Review your business reports and records even if you have a bookkeeper or an accountant. It is your business and liability on the line, so it is vital to know what is going on. If you are looking to hire someone to do your taxes, the IRS suggests a list of questions to ask the prospective tax preparer.
  5. Prepare for next year as soon as you have filed for the current year. Make a list of steps and possible improvements for the following tax season while the success and/or struggle of the current one is still fresh on your mind.
  6. Keeping Accurate Tax Records

  7. Understand your business structure and how it impacts your taxes. As your business grows and changes, it is important to reevaluate whether your current structure still works for you.
  8. Know how to claim your home office on your taxes. Whether you rent or own, you can claim a space that is designated for your business. It can be a partial space, rather than the whole room, and it must not be used for any other purpose. Once you have measured the space, you may be able to deduct a portion of expenses, like your mortgage interest, insurance, and utilities. The IRS has a home office deduction page with instructions.
  9. Record your mileage and car expenses if you use your car for business. There are two methods for calculating this deduction – one is based on your standard mileage rate, and the other is based on actual car expenses, like gas, repairs, and insurance. Whichever formula you choose, you will need documentation, including dates, mileage, tolls, parking fees, and the reason for your trip.
  10. Remember to save receipts from meals, travel, entertainment, and gifts. While you can deduct 50% of business-related meals, the cost of travel is 100% deductible. Most client entertainment expenses fall under the 50% deduction limit, while a direct gift to a client or employee is 100% deductible (up to $25 per person per year).
  11. Deduct office supplies even if you do not take the home office deduction. Furniture and other equipment, software/subscriptions, and telephone charges are also tax-deductible.

There are endless tips on how to streamline your business tax process as well as how to avoid a business tax audit. From starting a retirement plan, donating, and deferring income to not hiring too many independent contractors and limiting your business loss claims, the possibilities are seemingly endless. A small business attorney will help you sift through the checklists and keep prepared for each new tax season.

If you need help with your business taxes, or just need to find ways to de-stress business tax time tasks for your small business, contact me, Elizabeth Lewis, at the Law Office of E.C. Lewis, P.C., home of your Denver Small Business Lawyer. Phone: 720-258-6647. Email: elizabeth.lewis@eclewis.com

Contact Us Today

Law Office of E.C. Lewis, P.C.
Your Denver Business Attorney
501 S. Cherry St., Suite 1100
Denver, CO 80264
720-258-6647
Elizabeth.Lewis@eclewis.com

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3 Timely Colorado Business Formation Tips

There is a lot to think about when forming a new business, and some concerns need to be addressed right away or you may face problems down the road. Here are three time sensitive Colorado business formation tips and where to get help with them:

  1. What form will your business take?
  2. What taxes and licenses will your business be liable for?
  3. Who will review the contracts your business enters into?

What Form Will Your Business Take?

By form, I mean the legal structure your business will take. Will you form a corporation? If so, which type of corporate status is right for your business? Should you form a Limited Liability Company (LLC) instead? The form your Colorado business will take has a major impact on your tax liabilities, how much risk you expose yourself to personally, and even who is (and is not) a business partner. This question is perhaps the most timely of all the questions you will ask yourself when forming a new business because of the consequences should you run into trouble without a properly, legally formed business.

Perhaps the most important time for you to consult a small business attorney will be when you select the form your Colorado business will take. An experienced business attorney has the background needed to explain the pros and cons of the various forms your business can take and how the form you choose will impact you, including how your choices will affect dissolving a partnership or selling the business down the road. The Colorado SBDC has excellent resources for explaining the legal structures you can choose from, but in the end, you will want the advice of an attorney when drawing up the actual documents that form your new business in Colorado.

What Taxes and Licenses Will Your Business be Liable For?

This list seems to be getting longer every year, but the fact is, taxes and licenses are very time sensitive. You don’t want to find yourself in a situation where you have overlooked a tax your business owes, missed a payment deadline, or failed to obtain a required license or permit. Each of these mistakes can mean penalties or fines, some of them substantial. The Small Business Administration (SBA) has a fantastic and thorough list of Colorado resources for researching taxes and licenses, and the Colorado Secretary of State has a new business checklist that covers insurance and regulatory issues. There is a lot to know, and it is easy to overlook a requirement even with all of the resources offered. Making sure you have taken care of all required taxes and licenses is another good reason to consult a Colorado small business lawyer.

Who Will Review The Contracts Your Business Enters Into?

Contracts provide you with legal protections – if they are well constructed. Some of the contracts your small business may enter into include:

  • employment contracts
  • vendor contracts
  • purchase agreements
  • commercial and equipment leases
  • partnership agreements

Of all the frustrating legal entanglements I see small business owners struggle with, a poorly worded contract is typically the most expensive and demoralizing. Poorly worded contracts can make it difficult for you to end a relationship with a supplier, partner, or landlord, no matter the circumstances. An equipment lease that hasn’t been reviewed by your attorney can result in you owning equipment that doesn’t function properly but for which you are still required to pay every month. It is much less expensive to pay a small business attorney to look over a contract before you sign it than to engage one to help you get out of a bad contract.

There are other issues you will want to address as you think about your new Colorado small business, but these 3 timely Colorado business formation tips will help you right at the get go. If you need small business start-up advice, contact me, Elizabeth Lewis, at the Law Office of E.C. Lewis, P.C., home of your Denver Small Business Lawyer. Phone: 720-258-6647. Email: elizabeth.lewis@eclewis.com

Contact Us Today

Law Office of E.C. Lewis, P.C.
Your Denver Business Attorney
501 S. Cherry St., Suite 1100
Denver, CO 80264
720-258-6647
Elizabeth.Lewis@eclewis.com

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