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 (70 cents per mile). 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 similarly to sole-proprietorships or partnerships, meaning profits are taxed on your personal return. An S-Corp is a pass-through entity which 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 will remain 50% deductible in 2025. There are additional exceptions for company-wide events and DOT-regulated transportation workers.
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?
As a small business owner, it is unlikely you will be able to write off bad debts if you use the cash accounting method. Since payments are recorded as they are received, there is no tax benefit since there is essentially no payment.
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!
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