Eric Tyson - Small Business Taxes For Dummies

This icon points out information that you’ll definitely want to take away from this book.

This icon marks things to avoid and points out common mistakes people make when making small-business and tax decisions.

This icon tells you when you should consider doing some additional research. Don’t worry — I explain what to look for and what to look out for.

In addition to the material in the print or e-book you’re reading right now, this product also comes with some access-anywhere goodies on the web. Go to www.dummies.com and type in “Small Business Taxes For Dummies Cheat Sheet” in the search box to discover a list of pointers that can help you think about the role of money in your life and start achieving your financial goals.

This book is organized so you can go wherever you want to find complete information. You can check out the table of contents to find broad categories of information and a chapter-by-chapter rundown of what this book offers, or you can look up a specific topic in the index.

If you’re not sure where you want to go, you may want to turn a few pages and start at the beginning with Part 1. It gives you all the basic information you need to assess your small-business tax situation and points to places where you can find more detailed information for improving it.

Part 1

IN THIS PART …

Minimize your tax bill through year-round tax planning and understand the tax law changes. Be sure to factor taxes into your small business decisions, check out common tax mistakes, and understand tax terms and rates.

Decide what business entity (corporation, LLC, sole proprietorship, and so on) to use, and consider what benefits to offer to your employees.

Investigate your small-business retirement account options — such as SEP-IRAs, SIMPLE plans, 403(b) plans, and 401(k) plans — and select top-notch investments.

Handle small-business real estate decisions, such as deciding whether to work out of your home, lease space, or buy property.

Plan your estate, including your small business. Determine your estate’s tax concerns and reduce your expected estate taxes.

Chapter 1

IN THIS CHAPTER

Appreciating the value of year-round tax planning

Understanding recent important tax law changes affecting small businesses

Checking on changes made by the SECURE Act of 2019 and COVID-19 relief bills

Looking ahead to possible upcoming tax law changes

Noting the various taxes you and your business pay

Even though I write about personal finances, including tax issues, I don’t particularly enjoy dealing with taxes. I would rather cut my lawn, take care of my neighbor’s dog, or even visit my dentist (for a routine cleaning). At least in all these cases, I know my time commitment is reasonably limited, and when I’m done, I’m satisfied that the job has been done well and I can move on to something else.

Filling out state and federal tax forms is often complicated and confusing. Because I write about taxes, I feel that it’s essential for me to complete my own income tax forms and returns, which forces me to wallow in the details as much as possible so that I can more fully appreciate the challenges taxpayers face. (By contrast, prior surveys have found that the representatives in Congress who sit on committees that draft the nation’s tax laws generally use paid tax preparers themselves.) Not surprisingly, a report from the National Taxpayer Advocate cited “the complexity of the tax code as the No. 1 most serious problem facing taxpayers.”

Though some of this book deals with the drudgery of completing required tax forms, much of it deals with the more interesting — and dare I say, fun — part of small business taxes, which is planning ahead and strategizing so as to reduce and minimize your taxes. You see, if you simply view your role with taxes and your small business as jumping through the many hoops that federal, state, and local authorities require, you’re missing out on something potentially really big — saving and keeping more of your hard-earned money.

This chapter introduces the basics of small business taxes. Here, I discuss the value of tax planning all year long. I also explain recent tax law changes along with those you may see in the future. Finally, I define some important tax-related terms regarding the taxes you pay or may come across.

Taxes are a large, vital piece of your small-business and personal financial puzzle. You’re required by law to complete your income tax forms each year and pay the taxes you owe. You do this because you have deadlines and don’t want contact initiated by local or state authorities or the IRS to result in fines, penalties, or worse, jail time!

Nothing really forces you to plan ahead regarding your tax situation and small business. That’s why the vast majority of small-business owners don’t take steps year-round to plan and reduce their taxes. However, tax planning all year is valuable because it enables you to stay on top of your tax and business financial situation and minimize the taxes you legally owe. In this section, I explain typical ways in which taxes enter small-business decisions and some common tax mistakes folks make in this realm.

Taxes infiltrate many areas of your small business and your personal finances. Some people make important financial decisions without considering taxes (and other important variables). Conversely, in an obsession to minimize or avoid taxes, other people make decisions that are counterproductive to achieving their long-term business and personal financial goals. Although taxes are an important component to factor into your major business and financial decisions, taxes shouldn’t drive or dictate the decisions you make.

The following list shows some of the ways that tax issues are involved in making sound financial decisions throughout the year.

Type of business and benefits offered: The type of business entity you select for your business — sole proprietorship, limited liability company (LLC), S corporation, and so on — can have significant tax and other consequences. The benefits you’re able to utilize and offer to your employees, if you have them, also have tax ramifications (see Chapter 2).