First-Time Business Owners: A Brief Guide to Tax Filings

In their reserve, Start Your Own Business, the staff of Entrepreneur Media Inc. guides you through the critical steps to starting a business, then supports you in surviving the beginning three years as a business owner. In this edit excerpt, the authors offer a quick template to help you figure out what taxes you may owe the federal politics. Your federal tax filing obligations and due dates generally are based on the legal structure you ’ ve selected for your occupation and whether you use a calendar or fiscal year. Sole proprietorships . If you ‘re a sole owner, every year you must file Schedule C ( Profit or Loss From Business ) with your shape 1040 ( U.S. Individual Income Tax Return ) to report your business ’ randomness net income profit and loss. You besides must file Schedule SE ( Self-Employment Tax ) with your 1040. If you ‘re a calendar-year taxpayer, your tax file date is April 15. Fiscal-year taxpayers must file their returns no by and by than the fifteenth day of the fourth calendar month after the end of their tax year.

You must besides make estimate tax payments if you expect to owe at least $ 1,000 in federal tax after subtracting your withhold and credits, and if your withhold will be less than the smaller of : 1 ) 90 percentage of the tax to be shown on your current class tax render or 2 ) 100 percentage of your former year ’ s tax indebtedness. Partnerships and limited liability companies (LLCs). Companies set up with these structures must file shape 1065 ( U.S. Return of Partnership Income ) that reports income and passing to the IRS. The partnership must furnish copies of Schedule K–1 ( Partner ’ s Share of Income, Credits, Deductions ), which is depart of Form 1065, to the partners or LLC members by the filing date for form 1065. The due dates are the lapp as those for sole proprietors. Corporations . If your business is structured as a even pot, you must file form 1120 ( U.S. Corporation Income Tax Return ). For calendar-year taxpayers, the due date for the retort is March 15. For fiscal-year corporations, the refund must be filed by the fifteenth day of the third base month after the end of your corporation ’ second tax year. S corporations . Owners of these companies must file Form 1120S ( U.S. Income Tax Return for an S Corporation ). Like partnerships, shareholders must receive a copy of Schedule K–1, which is part of Form 1120S. The ascribable dates are the same as those for regular corporations .

Tax-Deductible Business Expenses

According to the IRS, the operate on costs of running your business are deductible if they ‘re “ ordinary and necessary. ” The IRS defines “ ordinary ” as expenses that are common and accept in your plain of business. “ necessary expenses ” are those that are allow and helpful for your commercial enterprise. Following are some of the commercial enterprise expenses you may be able to deduct. Equipment purchases. Under IRS Code Section 179, expensing allowance, occupation owners can in full deduct from taxable income a limited measure of the cost of new business equipment in a year quite than depreciating the cost over several years. In 2014, the utmost federal allowance is $ 25,000. For more information, get a copy of IRS Publication 946, How to Depreciate Property, and read “ Electing The section 179 Deduction. ”

Business expenses. Some common business expenses for which you can take a subtraction include ad expenses, employee benefit programs, policy, legal and professional services, telephone and utilities costs, rent, office supplies, employee wages, membership dues to professional associations, and business publication subscriptions. Auto expenses. If you use your car for business purposes, the IRS allows you to either deduct your actual business-related expenses or claim the standard mileage rate, which is a specify come of money you can deduct for each business mile you drive. To calculate your deduction, multiply your business miles by the standard mileage pace for the year. For tax purposes, be certain to keep a log of your occupation miles, angstrom well as the costs of business-related parking fees and tolls, because you can deduct these expenses. While using the standard mileage rate is easier for record-keeping, you may receive a larger deduction using the actual cost method acting. If you qualify to use both methods, the IRS recommends figuring your deduction both ways to see which gives you a larger subtraction, equally long as you have kept detailed records to substantiate the actual monetary value method acting. For more details on using a cable car for business, see IRS Publications 334 ( Tax Guide for Small Business ) and 463 ( Travel, Entertainment, Gift and Car Expenses ). Meal and entertainment expenses. To earn a deduction for business entertainment, it must be either directly related to your occupation or associated with it. To be deductible, meals and entertainment must be “ ordinary and necessity ” and not “ lavish ” or “ extravagant. ” The tax write-off is limited to 50 percentage of the cost of qualifying meals and entertainment. To prove expenses are directly related to your clientele, you must show there was more than a general expectation of gaining some business benefit other than good will, that you conducted business during the entertainment, and conducting business was your chief purpose. To meet the “ associated ” with your business test, the entertainment must directly precede or come after a solid business discussion. In accession, you must have had a clear business aim when you took on the expense.

Be sure to maintain receipts for any entertainment or meal that costs $ 75 or more, and record all your expenses in an report book. Record the occupation reason for the expense, total exhausted, dates, localization, type of entertainment, and the identify, championship, and occupation of the people you entertained. Travel expenses. You can deduct average and necessary expenses you incur while traveling on business. Your records should show the measure of each expense for items such as transportation, meals and lodge. Be indisputable to record the date of passing and return for each trip, the number of days you spent on business, the appoint of the city, and the business rationality for the travel or the business benefits you expect to achieve. Keep track of your clean and laundry expenses while traveling because these are deductible, as is the cost of call, facsimile, and modem custom. Related Book: The Tax & Legal Playbook

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Category : Finance

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