As tax season approaches, we understand you may have many questions and concerns about filing your small business taxes. That’s why we’ve compiled a list of the top 1️⃣0️⃣ Tax Questions from Small Business Owners and their answers:
- Are there any big tax changes in 2022 that I should know about before I file my business taxes? Starting in 2022 and continuing through 2026, businesses will face several tax changes scheduled as part of the Tax Cuts and Jobs Act (TCJA), including a switch to five-year amortization of R&D expenses, the gradual phaseout of 100 percent bonus depreciation, a tighter interest deduction limitation, and an increase in international tax rates.
- How long should I wait for 1099s, and what do we do if we don’t receive the one we expect? Employers have until January 31st to issue 1099s. Make sure to report the income on your taxes.
- I’ve heard you pay fewer taxes if you are an S-Corp. Is that true, and when is the best time to become one? Structuring your business as an S corp would reduce your tax liability since you would no longer be subject to self-employment tax. Still, many other factors must be weighed to see if this is your best option.
- Can my business deduct money that I donated to charity? All charitable contributions made by the business can be deducted for book purposes. However, depending on the type of entity your business is, charitable contributions may not be deductible by the business for income tax purposes.
- Am I taxed on the inventory I didn’t sell and still have in stock at the end of the year? Inventory is a component of the cost of goods sold. The higher your ending inventory at the end of the year, the lower your cost of goods sold expenses are. So while you are not directly assessed tax on your inventory, ending inventory affects your expenses.
- What should I do if I didn’t make any estimated tax payments for last year? Can I file an extension to give me more time? An extension is only an extension of time to file your tax return, not an extension to pay. It is best to pay as much as you can by the due date of the return, even if it is less than the full amount due. You can request an installment plan with the IRS or apply for a personal loan through a financial institution to cover the tax due.
- Is it true that claiming home office deductions is a red flag to the IRS, and I will probably get audited? Taking the home office deduction in itself is not a red flag. The red flags arise when taxpayers try to push the limits of this deduction. Ensure you have a separate room designated as a home office that you do not use for other activities.
- My business has claimed a loss on the last three years’ tax returns. Will the IRS tell me it is a hobby instead of a business? The IRS considers an activity a business if it has shown a profit in the last 3 of the five years. If it does not, the IRS may review or audit your business to determine if it should be recategorized as a hobby.
- Do I need to file tax returns in the states my employees live in? Payroll almost always triggers nexus, meaning you now have a connection to another state and potentially additional filing requirements. If you have employees in a state that perform services or sell products and you have sales in that state, you probably have an income tax filing requirement.
- How do I know how much to pay in estimated taxes? To avoid the underpayment penalty, you must pay 100% of the tax from the prior year or 80% for the current year, whichever is smaller.
If you have any more questions about your small business taxes, we are here to help. Our experienced team can easily answer any questions and help you navigate the tax season.
Don’t wait until the last minute to get started on your small business taxes. Book a tax assessment with us today to get ahead of the game and ensure you’re on the right track. Click here to book your assessment now.