A Comprehensive Course to New Business Owner Taxes
As a new business owner or independent contractor, it’s critical to understand the tax requirements of your business. With the myriad of rules and regulations across state and federal governments, this can seem like an overwhelming task. But learning about what is taxable income, deductible expenses, and government approved documentation will help you get all the deductions you deserve so you can keep more of your hard-earned money! In this comprehensive course on new business owner taxes, we will cover taxes and how they relate to your business.
Is it Taxable?
If you earn money from your business, chances are it’s taxable, but not all income is treated equally, and in this course we will examine that. Take consulting income as just one example: in most cases, it’s fully taxable (and deductible). But if you freelance for a specific company and receive an employee ID number, or invoice that company on a 1099 form, then it can potentially be partially excluded from taxes. If your business is a sole proprietorship you report profits as personal income and pay self-employment tax. You also have to pay federal, state and local taxes if your business generates more than $400 in annual sales. As a general rule, anything you spend to make money counts as a deduction when calculating your net profit. It’s important to note that there are two different types of deductions: above-the-line deductions and below-the-line deductions. Above-the line deductions reduce adjusted gross income, which determines how much you owe in taxes at each bracket. Below-the line deductions reduce taxable income by decreasing expenses directly related to generating revenue. Both types of deduction lower your final tax bill—but only one type may be deducted from other forms of income like wages or salary. The IRS considers many factors when determining whether something should be counted as above or below line; however, one thing is certain: you will need to know and understand these intricacies so you can fully take advantage of the tax benefits of owning your own business.
Expenses Are Deductible
If you work as an independent contractor or own a business, running your own business can be both exciting and challenging. Tax season is no exception—the Internal Revenue Service (IRS) has a number of rules that go into play when determining whether or not your business-related expenses are deductible. If you’re preparing your own taxes, there are plenty of resources out there to help you interpret these guidelines. For example, if you use a computer for work-related purposes and want to claim it as a deduction on your taxes, you’ll need IRS Form 1040 Schedule C. Our course will guide you through understanding what is an expense and how it is deductible.
Forms Are Necessary
One of the biggest problems that new businesses face is record-keeping. As a sole proprietor or business owner, you will be responsible for maintaining your company’s records, including but not limited to keeping track of all incoming and outgoing funds (including taxes paid), sales data and compensation reports. When it comes time to file your tax returns with your state or local government, these records will form a large part of your claim for any refunds owed or credits available. Regardless of what type of business entity you choose—an LLC or S Corp., for example—all businesses have similar bookkeeping requirements as outlined by each state and must adhere to those rules in order to remain in compliance with federal tax laws. We will help you understand these forms and how to use them.