Gaizer.com Tips for Business Start-ups

As a small business owner, it is important that you understand how the tax system works—it will have a direct affect on how much money you take home. Even if you choose to hire an accounting professional to prepare your taxes, you should know the general principals of taxation.

What Items or Expenses are Deductible?

Any assets or expenses that are used with the expectation of making money are tax deductible. For example, you can deduct your computer or car (if they are used solely for business purposes) or any other items necessary to run your business.

What Items or Expenses are Not Deductible?

In general, your business cannot deduct items or expenses that are not used with the expectation of generating income. For example, a computer used by your family is not deductible. Other non-deductible items include traffic tickets, clothing (unless it is a uniform), your home telephone line, and money spent for the purpose of conducting business in an unlawful manner, such as bribes, (It may seem obvious to state that, but you’d be surprised how many people try!)

Small Business Taxes and Employees

Employment Taxes are very complex. If you do them yourself, you are bound to make costly mistakes. It is advisable to have an outside firm manage employment taxes and paychecks. If the firm makes a mistake, it typically pays the penalty. (Verify this in your service contract.) For your employees, you must withhold federal income tax and other earnings-related taxes from every check.

Your employees need to fill the federal W-4 (Employee’s Withholding Allowance Certificate) and I-9 (Employment Eligibility Verification) forms from the U.S. Immigration and Naturalization Service (INS). You, or your filing company, must determine the right amount to deduct from your employees’ paychecks.

As an employer, you are required to pay for Medicare and Social Security expenses. Moreover, depending on how long you have employed an individual, you will need to pay for that employee’s unemployment insurance. Many factors are taken into account when calculating these taxes including the size of the firm, date of hire, and balance on the unemployment insurance account.

Tip: Make sure to file all payroll tax returns and make the tax payments promptly. Keep in mind that the IRS routinely audits businesses that hire independent contractors, as these workers provide tax savings over a regular employee.

Always check with your accountant for information on that pertains to your business