When you’re starting up a new business, most of your energy will probably be put toward forming a business plan, developing your product or service and figuring out how you will market to your niche. However, it is important to also develop a tax plan for your business, as you will be responsible for paying business taxes.
With this in mind, here are a few business owner tax tips for you to consider as you begin the business formation process in Hayward, CA:
- Choose the proper business entity: You will have several choices with regard to business entity. In a sole proprietorship, there is no separation between you and the business, meaning you get all the profits but are also personally liable for all debts and risk. In a partnership, you share ownership with one or more people, and there are various levels of liability depending on the kind of partnership you choose. A limited liability company (LLC) is one of the preferred choices for business owners, because you own the business and can share that ownership with others, but you are afforded some protection from personal liability as your personal finances and business finances are separate. There are also different types of corporations, but typically you would not incorporate until later on in the life of your business.
- Choose an accounting method: It is important to select an accounting method you’ll use early on, and then stick with it for as long as possible. The cash method is the most common choice for new small businesses because it is straightforward. You account for income in the tax year in which you received it, and expenses in the tax year in which you paid them. But there’s also the accrual method, in which income is counted for the tax year in which you earned the right to receive it. Any income earned in a December but received in January, for example, would still count toward the previous year’s taxes.
- Learn about available tax breaks: There are a variety of tax breaks available for small businesses, which can help you save on your taxes when you file each year. There are also business expenses you can deduct, which can save you quite a bit of money in the long run. Make sure you research tax breaks that are applicable to your type of business.
- Be aware of self-employment taxes: Depending on your business structure, you might be responsible for paying self-employment taxes to cover Social Security and Medicare. These taxes are similar to taxes withheld from the earnings of employees. Be sure to carefully research this as you choose a business structure and begin planning your first year’s finances.
- Always engage in tax planning: All of your financial transactions throughout the year and all of the financial plans you make should take your tax picture into consideration. You should also constantly track receipts and other financial documents so you are better prepared come tax filing season.
For more Hayward, CA business owner tax tips for you to take into consideration, contact the team at Menjivar & Company CPAs, Inc. today.
Categorised in: Tax Tips