Here are some Business Tax Tips to help you with making the proper decisions on how taxes can effect your business, avoid being audited and which deductions are available for you to claim.
1. The type of business you choose to use can effect you legally & tax wise. It is important to learn these different structures so that you are prepared on how to handle your business.
- Sole Proprietorship: Is the basic way to establish your business. You yourself are responsible for the companies assets & liabilities.
- Limited Liability Company (LLC): This is designed to be a flexible form of enterprise that provides the limited liability features of a corporation and a partnership. Learn more about LLC’s and be sure that you fall under its guidelines.
- General Partnership (GP): is a partnership in which all the partners are equally responsible for the debts acquired by the partnership. It is generally created by agreement rather than being created by a public filing.
- Limited Partnership (LP) : a partnership where at least one partner has unlimited liability and one or more partners have limited liability.
- Limited Liability Partnership (LLP) : a partnership where a partner’s liability for the debts of the partnership is limited except in the case of liability for acts of professional negligence or malpractice. In some states, LLPs may only be formed for purposes of practicing a licensed profession, typically attorneys, accountants and architects. This is often the only form of limited partnership allowed for law firms (as opposed to general partnerships)
- Professional Limited Liability Company (PLLC): Some states do not allow Professionals to form an LLC that would limit the liability that results from the services the professionals provide such as doctors, medical care, lawyers & legal advisers, as well as accountants. Instead the states allow a PLLC or in the LLC statutes, the liability limitation only applies to the business side, such as creditors of the company as opposed to the service side, the level of medical care, legal services, or accounting provided clients. This is meant to maintain the higher ethical standards that these professionals have committed themselves to by becoming licensed in their profession and not immune to malpractice suits.
- Corporation, Incorporated (Corp., Inc. ) : used to denote corporations. These are the only terms universally accepted by all 51 corporation chartering jurisdictions in the United States. However some states other suffixes may be used to identify a corporation, such as a Ltd., or Company. Some states allow the use of “Company” and prohibit the use of “& Company”. In most states sole proprietorship’s and partnerships may register a fictitious “doing business as” (dba) name with the word Company in it. It is best that you fully research this choice.
- Professional Corporations (P.C.) : this is a corporate entity for which many corporation statutes make special provision, regulating the use of the corporate form licensed by professionals such as attorneys, architects, accountants and doctors.
2. Keep good records of expenses and understand your deductions. Save all essential documentation to prove your deductions and expenses. Sometimes it is best to open a banking account directly and solely used for your business keeping a detailed record on all moneys coming in and out of the business.
3. Find a good accounting professional. Even if you are a small business it can beneficial to have someone educated in some of the tax or legal areas that you may not be. When looking for a bookkeeping or tax professional know the right questions to ask to ensure that you get the most out of your relationship. (for more information see our Frequently Asked Questions section of our website)
3.Utilize tax provisions and credits. The Small Business Jobs Act of 2010 was signed into law to decrease tax burdens on small businesses- several of these provisions can be taken advantage of during this year’s tax season. Utilizing these provisions could provide great savings for your business. (Also, do not forget about the Affordable Care Act, research how this can effect your business.)
4. Avoid Audits.
- Know the difference between an employee and an independent contractor. Mis-classification can seem as though the business is trying to avoid paying payroll taxes.
- Home Office Deductions- Not all home office businesses qualify, Learn on how to become qualified and which deductions are applicable.
- Large Sum Miscellaneous Deductions- The IRS can become suspicious if you try to claim large expenses that are categorized as miscellaneous relative to your income.
5. As mentioned before it is smart to keep your business and personal expenses separate. The IRS are always on the lookout for people who try to claim personal expenses as business.
It is always best to consult a professional or do serious research before making any legal or tax decisions, mainly to protect your assets and business from falling into a loss.