Empire Tax Solutions

A Tax Guide For New Businesses In The US

The American tax code is quite a complicated piece of legality that all citizens struggle with. Over the past four years, a significant number of amendments have been made to these codes—while the coronavirus pandemic has also forced the IRS to rethink its policies. While it’s natural for federal organizations to reconsider their tax policy approach, these changes have also thrown aspiring business owners and existing small businesses in a fair bit of confusion.

Common confusions like what tax brackets apply, whether the business is taxed as a corporation, and possible back taxes can be difficult to understand. If you’re looking for someone to help out with your taxes and manage your back taxes, you should get in touch with our tax relief consultants to help you out.

Until then, you should find ample guidance in this tax guide for small businesses. For further questions, you can always speak to our team.

Q1) Is A Small Business Taxed As A Corporation?

This question has deep legal implications in the sense that it relates to how the IRS views a small business and a corporation. See, the US government looks at corporations as legal entities that is required to pay taxes on its income—since it is legally treated as an individual distinct from its owners. This is why corporations are taxed at a flat income tax rate of 21%—this liability is not shared by the corporation owners who are taxed on their incomes only. It’s easier to think of this in the way that a corporation’s income is treated separately from the owner’s income.

On the other hand, your small business is treated as a pass-through entity where the corporate income is distributed among the owners—who are then taxed on their income. There are advantages of treating small businesses as pass-through entities because it eliminates the chances of double taxation. If you’re running a sole proprietorship, a partnership, an LLC, or an S-corporation, you will have to pay taxes based on your taxable income or your shares of business net income, depending on the type of business.

Q2) How Do You Figure Out Your Tax Liability?

A Tax Guide For New Businesses In The US

Once you’ve established that you aren’t being taxed as a corporation, the next natural question to ask is, how do you determine your taxable income? Since your business isn’t recognized as a distinct legal entity—any tax payments will be made in your name, the way to figure out your taxable income is:

  • Determine your total revenue
  • Determine your business expenses and deductions
  • Subtract the expenses and deductions from the revenue—the resulting figure is the business’s taxable income

Your business tax rates depend on the status of your business, i.e.:

  • Sole proprietorships are taxed at 13.3%
  • Small partnerships have to pay 23.6%
  • S-corporations pay 26.9%

There are ways of minimizing your taxable income to reduce your tax liability—our professional tax relief consultants can help you figure that out.

Q3) What Are The Different Types Of Taxes That You’ll Need To Pay?

The types of taxes you’ll need to pay are varied and depend on your business circumstances. Commonly, SMBs pay the following taxes:

  • Payroll taxes—includes social security tax, Medicare tax, Federal unemployment tax, State unemployment tax.
  • Self-employment tax
  • Excise tax
  • Sales tax
  • Property tax

Again, working out your tax liability is best handled by a professional tax preparer or with a consultant with vast experience in providing tax relief services.

A Tax Guide For New Businesses In The US

Q4) Are There Any Deductions You Can Apply For?

Thankfully, the Federal and State governments offer a wide range of tax deductions that you can avail to minimize your tax liability. The application of these deductions depends on your business’s circumstances, and you should speak with an expert to tell you which apply to your business. The IRS has a list of deductions on their website that you might find useful.

Q5) What To Do If You’re Behind On Your Taxes?

Considering the complexity of the US tax system, it’s not surprising that many business owners find themselves running behind on their tax payments. You must remember to remain proactive with the IRS and other state-level tax collection agencies to avoid legal action or other forceful tax collection methods like wage garnishments and tax liens.

If you’re struggling to make your tax payments, you should speak with our people for our tax relief services. Our team offers a wide range of services like negotiations with IRS, arranging for levy releases, penalty abatements, IRS settlements, and more. We work with businesses across the country, helping them avoid the stringent punishments handed out by the IRS for unpaid tax debts and tax filing/payment delays.