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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Preparing Quarterly Tax Payments for Your New Colorado Small Business

Preparing Quarterly Tax Payments for Your New Colorado Small Business

If you are a relatively new Colorado small business, and the January deadline to pay estimated taxes just snuck up on you, this post is for you.

You or your bookkeeper are probably using software to keep track of your sales and income – but knowing what you brought in is not the same as knowing what you owe in taxes. Plus, for small business owners, paying taxes is not an affair you sweat out every year in April – your estimated taxes are due four times every year, so you want the process of estimating what you owe, plus having the funds on hand to meet your obligations to be as simple as possible. Tax planning is always an important part of your overall business plan for the coming year, so take some time now, before the year gets away from you, to make sure you are ready for what lies ahead.

Making Your Small Business Estimated Tax Payments

If you already have a year of business ownership in your rear view mirror, then the process of making your small business estimated tax payments can be a bit more simple for you, but you can still get caught owing much more than you thought you did when the final calculations are made in April of next year. What’s the best way to stay on top of what you will owe? If you have ever had trouble meeting your tax obligations, or failed to run certain calculations correctly, you already know this: hire a qualified tax professional to help you stay on top of what you will owe. Estimated taxes are actually designed to keep you out of trouble, so having someone help you make those estimations correctly is a smart thing for any small business owner to do. Plus, you can write of the expense of having help!

If on the other hand, your small business has only been around for a couple of months, trying to figure out what taxes you might owe on this year’s income based on last year’s income is going to be difficult. It’s true that owing less than $1000 in taxes at the end of the year will mean that you don’t need to file quarterly taxes, but what if you do so well that your start up expenses and other allowed expenses during the course of the year don’t reduce your taxable income as much as you expect?

Try Calculating Estimated Payments Yourself

Here’s a litmus test for you: try calculating estimated payments yourself. If you can do it, put them on your calendar each quarter, and do them yourself (but consider having a tax professional review and submit them for you). If they are confusing, or just take more time than you have to give, use the list of questions provided at the end of this blog to find and hire someone to help you. Here are the relevant forms:

  • Individuals, including sole proprietors, partners, and S corporation shareholders, generally use Form 1040-ES (PDF), to figure estimated tax.
  • Corporations generally use Form 1120-W (PDF), to figure estimated tax.

Questions to Ask a Prospective Tax Preparer

    When you hire a tax professional for your small business, take the time to find someone who is qualified – the IRS offers the following list of questions to ask prospective tax preparer.

  1. Has the preparer worked with businesses similar to yours in size and type?
  2. Is the preparer familiar with your particular line of business?
  3. Does the tax preparer offer electronic filing?
  4. [Will he or she] deposit your tax payments electronically?
  5. [Ask] what services are included in the preparers’ fees.
  6. If the IRS examines your return, what is their policy on assisting you?
  7. You may want to ask for references, just as you would for any professional service.
  8. Consider checking with the Better Business Bureau, your State Board of Accountancy for CPAs, the State Bar Association for attorneys, or the IRS Office of Professional Responsibility for enrolled agents.
  9. Avoid any paid preparer who refuses to sign a return they prepared.

If you need a highly qualified tax advisor, or just want a referral to a good tax accountant to help you calculate quarterly tax payments for your new Colorado 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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