Managing taxes as a small business owner can be overwhelming. To help, we’ve answered some of the most common questions about taxes for small businesses. Let’s dive in!
1. Do I need to pay taxes quarterly?
Yes, most small business owners who expect to owe at least $1,000 in taxes must pay estimated taxes quarterly. This includes self-employed individuals, freelancers, and small business owners.
2. What is the self-employment tax?
The self-employment tax covers Social Security and Medicare taxes for self-employed individuals. It’s currently 15.3%, which includes 12.4% for Social Security and 2.9% for Medicare.
3. Can I deduct my home office?
Yes, if you use a specific area of your home exclusively and regularly for business, you may qualify for a home office deduction. This includes expenses like rent, utilities, and maintenance, proportionate to the size of the office.
4. Are startup costs tax-deductible?
Yes, you can deduct up to $5,000 of startup costs in the first year. Remaining costs can be amortized over the next 15 years.
5. Can I deduct mileage for business use of my car?
Yes, you can deduct mileage for business-related travel using the IRS standard mileage rate (58.5 cents per mile for the first half of 2022 and 62.5 cents for the second half). Alternatively, you can deduct actual vehicle expenses.
6. What’s the difference between an LLC and an S-Corp for taxes?
An LLC is taxed as a pass-through entity, meaning profits are taxed on your personal return. An S-Corp allows owners to pay themselves a salary and may save on self-employment taxes, but it requires more paperwork and compliance.
7. Are business meals tax-deductible?
Yes, business meals are typically 50% deductible. However, meals purchased from a restaurant may qualify for a 100% deduction for 2021 and 2022 due to temporary COVID-19 relief.
8. Do I need an EIN for my small business?
An Employer Identification Number (EIN) is required if you have employees, operate as a corporation or partnership, or file certain tax returns like excise tax returns. Sole proprietors without employees may use their Social Security Number.
9. Can I write off bad debts?
Yes, if you use the accrual method of accounting and have uncollected payments for goods or services, you can write off bad debts as a business expense.
10. How long should I keep business tax records?
The IRS recommends keeping records for at least three years. However, it’s wise to hold onto records for six to seven years in case of audits or claims for refunds.
Navigating taxes doesn’t have to be daunting. With proper planning and knowledge of deductions, you can maximize your savings and stay compliant. Always consult a tax professional for personalized advice!
