One thing is for sure, starting a business is exciting! Once you’ve taken the leap to become your own boss, a whole new world of possibilities opens up. That being said, business taxes and financial obligations can quickly become overwhelming.
But it doesn’t have to be.
There are some tax questions you can ask that will lighten the load and allow you to focus more on running a successful business.
…While you’re here, register for my exclusive FREE online training, ‘Teach Me The Tax Game’ to learn how to increase your income with a new career in the tax industry, and make $100K in just 90 days!
Starting A Business? Ask These Tax Questions
Here are some of the most significant and common tax questions you should ask when starting a business.
Can Legal or Administrative Fees Be Deducted?
Starting your own business can be expensive. In the first year, however, you can deduct as business expenses up to $5,000 of start-up costs and $5,000 of organizational costs.
The following qualify as business expenses:
- Legal and professional fees
- Market research and analysis
- Marketing and advertising
- Employee hiring and training
It’s important to keep accurate records and receipts so you can prove these expenses when filing your business taxes.
When Starting a Business, How Early Should You Form Your Business Entity?
The earlier you register your business, the better chance you will have of separating yourself from it. Every aspect of your business structure affects your day-to-day operations, taxes, and personal liability. When you start a business by yourself but don’t form a business entity, you’re considered a sole proprietorship, which comes with both advantages and disadvantages.
Interested in learning more about incorporating your business? Read this article next: LLC vs. S Corp: What Option is Best For Entrepreneurs?
When Operating a Business from Home, What Expenses are Deductible?
Your home office may qualify for the deduction if you use it exclusively and regularly for trade or business.
- Regular use usually refers to the location serving as your primary business location.
- Exclusive use means that the space can only be used for professional purposes.
Remember to keep detailed records of all business expenses you intend to deduct, including receipts for equipment purchases, utility bills, and repairs.
What Business Costs Are Tax Deductible?
In order for business costs to be tax deductible, they must be deemed “ordinary and necessary” by the Internal Revenue Service (IRS).
The following are common types of small business tax deductions:
- Advertising and marketing
- Office supplies
- Depreciation of assets
- Legal and professional fees
- Meals with clients or employees
- Travel expenses, including meals
- Continuing education and training
- Business insurance
- Phone and internet
- Rent and/or home office expenses
- Software, app, and subscription costs
- Vehicle and/or mileage for business use
A tax professional can guide you on the nuances of tax law related to meals, education, and transportation expenses.
Do Meals Qualify For 100% Tax Deduction?
Qualified business meals purchased from a restaurant in 2021 and 2022 are 100% deductible. For purchases made after 2023, however, the rules established in the Tax Cuts and Jobs Act apply, which means that restaurant expenses are once again subject to the 50% deduction limit.
Meals must be consumed by a business contact, such as a customer, employee, vendor, or consultant, to qualify. Travel-related meals are also eligible.
Sadly, your morning coffee or lunch stop-in between clients isn’t tax deductible. For business expenses to qualify, the expense must be “ordinary and necessary,” and the meal may not be “lavish or extravagant.”
If I Received a PPP Loan, what are the Tax Implications?
Traditionally, forgiveness of business loans was treated as taxable income, but PPP loans do not follow that rule. In general, forgiven PPP loans are not included in gross income at the federal level, so they won’t be taxed. However, states may treat those funds as taxable income, so it’s worth checking the laws in the state where you operate your business.
Additionally, small business owners are now able to deduct business expenses paid with forgiven PPP loans and other COVID-related loans and grants. As a result, your PPP loan generates a second layer of tax benefits: your loan is income tax-free, AND your expenses can be deducted from your income.
Are There Any Stimulus-Related Tax Benefits For Small Businesses That Didn’t Receive a PPP Loan?
Yes, including paid sick leave benefits and a tax credit for keeping employees on your payroll. Employee Retention Credits (ERCs) are refundable tax credits designed to help small business owners retain employees, even if your business has ceased operations or your finances have been impacted by the pandemic. In contrast to business loans, the ERC is a credit on your company’s payroll tax return.
A change was also made to the benefits associated with paid sick leave. As part of the Families First Coronavirus Response Act, employers were originally required to pay employees who missed work due to COVID-19, but a tax credit was offered to help cover the cost.
Small businesses can also file amended tax returns for 2018 and/or 2019 if their losses were limited for those years. In addition, you can carry back NOLs (net operating losses) from 2018 through 2020 to the five years prior. In other words, if your company made money in the past five years, you’ll be able to reduce this year’s profits by the previous years’ and get back the tax you paid.
What Happens If I Can’t Pay My Business Taxes?
Don’t burst into hysterics, but certainly don’t ignore the problem.
You should still file your taxes even though you can’t afford to pay them right now. There are options available if you have filed your business tax return and are unable to pay (or if your business still owes taxes from a previous return).
Start by verifying that you owe the right amount of taxes. Hiring a professional tax preparer can help you ensure you’re filing correctly and aren’t missing out on any deductions and credits you’re entitled to.
If you fail to file your tax return and don’t make a payment arrangement with the IRS, they may force you to pay. Besides filing a lien that damages your credit, they can seize your bank accounts and income sources.
That being said, the Internal Revenue Service offers a variety of payment options for businesses that need additional time to pay. These options range from short extensions like Form 7004 to online payment agreements.
Starting A Business? Get Expert Help
As I said, starting a new business is one of the most exciting and rewarding things you can do! But that doesn’t mean it’s easy—it comes with a lot of caveats and requires serious dedication
and hard work.
If you’ve been thinking about starting your own business, I can help! With over a decade of experience and millions of dollars in profits, I can show you how to start and keep a successful company.
Ready when you are—if you’re serious about taking the next step for your future, contact my team today!
…And don’t forget! Register for my FREE online training, ‘Teach Me The Tax Game’, and learn how to make $100K in just 90 days as a tax preparer!