Online Tax Help for Small Businesses
The following tax preparation tips are not a substitute for acquiring sound tax preparation advice from your accountant or financial planner.
Self Employment Online Taxes
If you are in business for yourself, either as a sole proprietor or an independent contractor, you are generally considered as a self-employed individual. According to the IRS, you are an independent contractor if the person for whom you perform services for has only the right to control or direct the result of your work, not what will be done, or how it will be done. As a self-employed individual, you may be responsible for completing multiple tax forms, depending on your type of business. Self-employed individuals are subject to a self-employment tax.
Small Businesses Online Taxes
There is no official IRS designation that defines the size of a business as “small”, however, the government’s official stance can be found in the Small Business Act. It states that a small business concern is “one that is independently owned and operated and which is not dominant in its field of operation.” For those small businesses that are “big” enough to avoid the self-employment tax, the following rates apply:
| Taxable income over | But not over | Tax rate |
|---|---|---|
| $ 0 | $ 50,000 | 15% |
| 50,000 | 75,000 | 25% |
| 75,000 | 100,000 | 34% |
| 100,000 | 335,000 | 39% |
| 335,000 | 10,000,000 | 34% |
| 10,000,000 | 15,000,000 | 35% |
| 15,000,000 | 18,333,333 | 38% |
| 18,333,333 | No Limit | 35% |
End-of-Year Tax Preparation Tips
Depending on whether you utilize the cash accounting method or the accrual accounting method, these tips may be a great way to optimize your year-end tax savings.
- If you can defer any income to the following year, you might be able to save yourself a few bucks. Any new income incurs new taxes, therefore, you may want to carefully measure the pro’s and con’s of collecting that final payment from your client on December 31st or January 2nd.
- If you were planning any equipment or office furniture puchases in the new year, you may want to consider getting them early. These purchases may qualify as business deductions which will lower your taxable income.
- Similarly, if you use cash accounting principles in which you recognize revenue and expenses as soon as the money changes hands, you may benefit from purchasing any supplies you might need, travel reservations for the upcoming year, prepayment of bills soon due, equipment maintenance, and any other normal expenses that are allowable as business deductions under the Internal Revenue Code.
- If you have any inventory that is damaged or obsolete. Now might be a good time to recognize the depreciation on these items.
- The end of the year is a great time to contribute to a retirement plan such as a KEOGH plan, Roth IRA, or SEP’s. Again, the goal here is to reduce your taxable income.
These tips are just a few of the many different ways in which a small business owner can decrease her taxable income, and therefore, her federal income taxes. Always remember, there is no substitute for seeking advice from your accountant or financial planner.
