This year, filing business taxes and doing your bookkeeping is more complicated than usual.
That’s because the recently enacted Tax Cuts and Jobs Act, or TCJA for short, has made massive changes to the federal tax code and just about every taxpayer is affected, including you and your business. Are you ready?
If not, don’t worry. This guide will simplify things to give you an overall perspective on the changes. And while it won’t eliminate your business taxes, it can help you prepare and unlock substantial 2019 tax deductions for your business.
Taxes and Rates
On the plus side, the TCJA substantially reduces the income tax rate for corporations. And, if you have a pass-through entity you can now expect a larger deduction. However, on the down side, a number of tax savings have been eliminated. Where does that leave your business taxes? You won’t quite know what kind of tax break you’re going to get, if any, until you go through the process.
Starting this year, the small business tax rate for C-corporations is a flat 21%. That’s down from a max of 35%. Different businesses pay different amounts depending on their type of entity. If you have a pass-through entity, your business taxes are based on your personal tax rate, which can range between 10% and 37%. Something else new for 2019: entities can deduct up to 20% of their business income before calculating the tax rate. But before you start calculating, let’s consider the six types of business taxes.
You’re probably familiar with income taxes. If you’re a traditional type C-corporation, you have to pay taxes on your business’s net income for the year. The net income is determined once all deductions have been taken into account. If you do have a pass-through entity, such as an LLC, sole proprietorship, or an S-Corporation, your business does not need to pay any income taxes. Instead, the taxes will be assessed at your personal income rate. Still with me?
It’s simple. If you have employees, you have to pay employment taxes, a.k.a payroll taxes. These are based on their wages and include Social Security and Medicare taxes, federal income tax withholding, as well as federal and state unemployment taxes. This trips many businesses up, especially if you’re doing your own bookkeeping. And, failing to make these tax payments in a timely manner can lead to pricey penalties.
Now, what if you’re self-employed? Yes, you have to pay self-employment taxes. Like payroll taxes, that includes Social Security and Medicare. And while businesses typically cover a portion of this, the self-employed businessperson has to cover the whole amount. Your independence comes with a price.
Excises taxes are duties taken on manufactured goods at the time they are created rather than when they are sold. Three main examples would be tobacco, alcohol, and gasoline. If your business deals in an industry or with products or services that are subject to excise taxes, you’re responsible for collecting and sending them to the IRS.
We all know this one. The thing is, the sales tax rates are different depending on your location. So, you have to be well versed on the local and state sales taxes you’re responsible for collecting and reporting. Even if you sell online, there may be some instances where you’ll need to collect sales tax from out-of-state customers.
If you own commercial property, whether it’s a brick-and-mortar location or just a plot of land, you have to pay property taxes to the city or county where it resides.
Timing is Everything
On top of knowing how much your business needs to pay in taxes, it’s also important to know when you are supposed to pay them. Most business owners are required to pay estimated income and self-employment taxes throughout the year on a quarterly basis. The amount is based on what you believe your taxable income will be at the end of the fiscal year. It’s not always easy to predict. But generally, your best-educated guess works. Of course, if you estimate too low you’ll be paying a load at the end of the year. And, if you don’t pay quarterly you’ll be subject to penalties and interest.
One of the smartest moves you can make as a business owner is investigating and utilizing any and all legitimate 2019 tax deductions for business expenses. This can greatly reduce your tax bill. Deductions can include the costs of certain assets, net-operating losses, and even tax credits you may qualify for. Tax credits are particularly sweet given the value of their dollar-to-dollar saving.
Figuring It All out
So, how do you determine exactly what you owe in taxes? Use the above guide to identify what you’re responsible for first. Then, visit the IRS website to determine the tax rates that apply to your business. It also helps to review your bookkeeping and determine current withholdings to see what you’ve already paid for the year. You could be in better shape than you think.
Of course, if you’re having reservations about doing business taxes yourself you should definitely reach out for expert advice. Whether you’re looking for someone to prepare and file your federal business tax return or to manage your bookkeeping throughout the year, Xendoo’s team of experienced professionals are ready to help you get everything in proper order before the deadline. That way, you can stay focused on growing your business. Feel free to contact us here.