Last Updated on 07/01/2021 by Deepak Singla
The end of a financial year is a period of hectic activity for businesses. Every business needs to complete their accounts for the fiscal year for the purpose of calculating taxes payable by the business.
The recently passed tax laws are encouraging for small businesses operating entirely domestically. Startups or small businesses who have all or part of their operations abroad might need to discuss the new developments with a tax advisor.
The amount of tax depends upon a plethora of factors, including the business location, selling of taxable products or services, making a profit, and much more. Paying taxes is a crucial component in maintaining the legitimacy of a business.
This is especially true in the case of small businesses and startups, who don’t have the resources or adequate dedicated personnel for this purpose. I have come across several tax-related issues while working on my startup.
Hence, I decided to compile this list of 5 tax issues that every business owner or aspiring business owner needs to consider after consulting with several tax experts. Especially the business owners who don’t have a tax advisor needs to take advantage of this knowledge.
Startup and Small Business Deduction
If you are a startup or a small business, then you positively need to avail of this recently introduced deduction. This deduction applies to companies registered as sole proprietorship and partnerships.
A deduction of up to 20 per cent is available for claim by small business owners on their business income using this law. The compensation paid to employees also affects the extent of the deduction. The tax calculations are complex, especially in the case of businesses dealing in specific services.
Hence, it is favourable to consult with a reputed tax attorney or Professional tax consulting services who can help you get the best possible tax optimization for your business.
Net Operating Losses
The net operating losses are now applicable for eternity instead of the previous rule of two years. The tax relief from net operating losses is eligible for use on 80 per cent of the taxable income.
When the business’s total taxable income is lower than the tax deduction amount, net operating loss ensues. The net operating loss is applicable for waiving any subsequent tax payments.
First-year Depreciation Deduction
The bonus deduction for the first-year depreciation has undergone a boost from 50 percent to 100 percent. The new plan means that companies are eligible to purchase assets, and business owners can write-off the entire amount in deductions.
The assets may include the purchasing of any pieces of machinery, tools, and vehicles. This change allows businesses to utilize the additional funds to hire employees and invest further in their business.
The tax reduction for corporate entities has experienced a massive hike from 21 percent to 35 percent. This deduction is only applicable to corporate entities coming under the C – category corporations.
Many small business owners are consulting with tax experts to change their business from an ‘S’ category corporation to a ‘C’ category corporation to avail of these tax benefits.
However, the truth is that corporations that are coming under the C- category need to pay double taxes in the form of dividends on profit. Due to this form of taxation, the allure of the deductions does not make a considerable impact on the business’s savings.
Staying Aware Of Tax Changes and Taxable Perks
Every business owner must stay up to date with the latest tax norms even if you utilize the service of a professional tax advisor. Tax laws are subject to change, and a smart business owner can make the most of the deductions and benefits.
It is advisable not to gamble on future tax laws for making business decisions. Ideally, you should not treat taxes as a once a year event and instead as a steady effort practised continuously throughout the year.
A reputed tax professional can help your business in ensuring paying off all the overdue taxes. You can also ensure that all the benefits of deductions that are available to your business are secured.
The amount spent on food, be it for a client during a meeting or for the employees on a special occasion is admissible to a 50 percent deduction. The IRS even confirmed the same in guidelines issued on money spent on food.
Tax issues can play a significant part in the financial workings of your business. A small business owner needs to keep themselves updated on the current tax laws. The majority of the companies are integrating the ramifications of the latest tax reforms.
Most companies are looking at the changes in a positive light. You can plan to invest the tax savings earned to increase the compensation of their employees or hire more employees to your workforce. Taking advantage of the services of tax attorneys like the Dordulian law group can make your tax filing much more manageable.
You can even decide to slash the selling price of your product or service to make your business have a competitive edge. On the other hand, lapses in tax operations for a company should be avoided at any cost.
A lapse in the timing of tax filing can cause unnecessary problems for your business. Likewise, improper record keeping and under-reporting are also severe issues that companies should abstain.