Tax Laws Small Business Owners Shouldn’t Ignore

tax prep

Statistics show that small business owners pay taxes of around 19.8%. Taxes are a pain in the neck for a lot of business owners. For instance, the sales tax rate in Oklahoma City is estimated to be 4.13%.

However, certain taxes and deductions can be claimed only by businesses, and you may be able to use these to your advantage. Keep reading to find out some of the tax laws you should be well-versed in as a business owner.

When to Pay Taxes

One crucial thing you need to know as a business owner is when to pay taxes. As a business owner in the U.S., you need to pay income tax when you receive your earnings. In simple terms, instead of paying your taxes once every financial year, you should do so quarterly.

As a business owner, it is important that you pay your taxes when they are due to avoid penalties. It would be wise to seek the services of an accounting firm for all your tax prep needs. Once your taxes are handled, you can focus fully on growing your business.

Qualified Business Income Deduction

In December 2017, the Tax Cuts and Jobs Act was passed. Part of this act was the Qualified Business Income Deduction (Section 199a). According to this provision, some business types that have a profit lower than a certain amount have 20% deducted from their profits.

For example, if you own a gym and your profit is $200,000, the new tax provision will require a deduction of $40,000. Therefore, you will only be taxed on $160,000 of your profits. The provision comes with restrictions and limitations, however, so it is important to be aware of them as a business owner. Tax prep is an important part of your business and it would be wise to get the services of a certified public accountant to handle all your tax preparation needs.

Cash Accounting

Before the cash method of accounting, if your average sales were above $5 million, you had to report your taxes on the basis of accrual accounting. Under the new provision, the threshold has gone up to $25 million. The new provision allows you to pay your taxes based on the cash you have received as opposed to factoring in your payables and receivables.

The cash method of accounting is simpler and aligns with your business’s cash flow. Tax prep can be complicated for you as a business owner. The services of tax preparers come in handy and as a business owner you should seek them out to make the tax prep process smooth.

Retirement Contribution

As a business owner, you can deduct retirement plan contributions as long as you do so before filing your returns. For example, if as a business owner you decide to put $10,000 as your profit sharing contribution, you can deduct it in your taxes but not make the contribution until you file your taxes. As such, you can benefit your business by keeping more cash and saving it to put into your retirement account. In order to be sure of your accounts, it is important to seek professional help in bookkeeping. You will be sure of your sales, payments, and purchases.

Taxes can be stressful but as a small business owner, you have an upper hand in that you can claim more deductions than the average business owner. It is important that you keep yourself educated on business tax provisions and have a reliable tax preparer. If you are looking for tax services in Tulsa, contact us today.

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