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TAX

One of the biggest burdens on businesses is taxes. Namely, how to pay less in tax. Tax strategy may be confusing and complex but a business owner needs to know it in and out, and/or employ a tax accountant and/or tax attorney to make sure the business stays compliant as the law continues to change.

FEDERAL TAX (INCOME AND DEDUCTIONS)

How is the federal tax rate determined for my business?


All businesses except partnerships must file an annual income tax return. Partnerships file an information return. Learn more here: https://www.irs.gov/businesses/small-businesses-self-employed/business-taxes




Can I deduct expenses for start up costs before I open up?


You must capitalize, rather than deduct, some costs. These costs are a part of your investment in your business and are called capital expenses. Capital expenses are considered assets in your business. In general, there are three types of costs you capitalize. Business start-up costs (See the note below)
Business assets
Improvements Note: You can elect to deduct or amortize certain business start-up costs. Refer to chapters 7 and 8 of Publication 535, Business Expenses. Learn more here: https://www.irs.gov/publications/p535#en_US_2019_publink1000208919




What is the best tax designation for my business and how do I elect for it?


Note that the type of business entity your business selects is not necessarily the same as the entity designation for tax purposes. Learn more here: https://www.irs.gov/businesses/small-businesses-self-employed/business-structures





PAYROLL TAX

What kind of taxes am I required to withhold from employee paychecks?


There are many different state, federal, and local tax requirements for employees, as well as other deductions that must be managed. If a business has employees, it may be best to engage a professional payroll service to help manage the complicated process of withholding and remitting payroll taxes. Learn more here: https://www.irs.gov/businesses/small-businesses-self-employed/understanding-employment-taxes




How often must I remit payroll related taxes?


With regard to federal tax, in general, you must deposit federal income tax withheld, and both the employer and employee social security and Medicare taxes. There are two deposit schedules, monthly and semi-weekly. Before the beginning of each calendar year, you must determine which of the two deposit schedules you are required to use. Learn more here: https://www.irs.gov/businesses/small-businesses-self-employed/depositing-and-reporting-employment-taxes




Am I required to pay payroll taxes for independent contractors?


You do not generally have to withhold or pay any taxes on payments to independent contractors. While this sounds great, independent contractor designation has requirements. A business must understand the difference between an employee and an independent contractor in order to determine if this benefit applies to them. Learn more here: https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee





PERSONAL USE OF BUSINESS ASSETS

How do I account for business use of my personal vehicle or personal use of my business vehicle? Can I write off all expenses to a business vehicle or are there limitations?


If you are using an asset (either personal or business) for both personal and business uses, you are required to keep track of the amount of use for each, and bifurcate those uses for the purpose of tax reporting. Business expenses can be deducted, personal expenses cannot. If you do not keep good records and then you get audited, the IRS will not give you the benefit of the doubt and you will not be allowed to have the claimed deductions for items not properly and reliably recorded. Learn more here: https://www.irs.gov/pub/irs-pdf/p15b.pdf




If I work from home, can I write off my house or home office as business expenses?


If you use part of your home for business, you may be able to deduct expenses for the business use of your home. The home office deduction is available for homeowners and renters, and applies to all types of homes. There are multiple methods for deducting such expenses that the IRS allows. See link: https://www.irs.gov/businesses/small-businesses-self-employed/home-office-deduction




If my business pays personal expenses, can I write those expenses off?


Generally, you cannot deduct personal, living, or family expenses. However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. You can deduct the business part. Learn more here: https://www.irs.gov/businesses/small-businesses-self-employed/deducting-business-expenses





SALES TAX (STATE AND LOCAL)

How is the federal tax rate determined for my business?


All businesses except partnerships must file an annual income tax return. Partnerships file an information return. Learn more here: https://www.irs.gov/businesses/small-businesses-self-employed/business-taxes




Can I deduct expenses for start up costs before I open up?


You must capitalize, rather than deduct, some costs. These costs are a part of your investment in your business and are called capital expenses. Capital expenses are considered assets in your business. In general, there are three types of costs you capitalize. Business start-up costs (See the note below)
Business assets
Improvements Note: You can elect to deduct or amortize certain business start-up costs. Refer to chapters 7 and 8 of Publication 535, Business Expenses. Learn more here: https://www.irs.gov/publications/p535#en_US_2019_publink1000208919




What is the best tax designation for my business and how do I elect for it?


Note that the type of business entity your business selects is not necessarily the same as the entity designation for tax purposes. Learn more here: https://www.irs.gov/businesses/small-businesses-self-employed/business-structures





TAX ENTITY REGISTRATIONS (FEDERAL AND STATE)

How do I register to do business in my state?


Every state has a slightly different process for registering. Generally speaking, go to the secretary of state's website to begin. Secondarily, most states require that if you are not a resident of the state you are planning to do business in, you will need a registered agent to represent your interests for the purposes of service of process. Learn more here: https://www.sos.ky.gov/bus/business-filings/OnlineServices/Pages/default.aspx https://www.sos.state.oh.us/businesses/




Do I need to register my business with the federal government?


Generally, if you have a registered business entity, you will need to register with the federal government for tax purposes. First, you will need to register with the secretary of state in your state. The federal tax designation is called an EIN (employer identification number), which is the number that your business entity will use to pay taxes to the federal government. Learn more here: https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online




Should I register my business anywhere other than my state and with the federal government?


Depending on where your business is planning to operate, you may need to register your business for various licenses in our city, county, township etc. This will require individual research in the jurisdictions your business is in. Learn more here: https://revenue.ky.gov/Business/Pages/Register-Business.aspx





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