Does my business need to pay taxes?

smiling businesswoman

Keeping your business in the green with taxes

There is nothing American’s dislike more than paying taxes, especially business owners and those pesky, never ending business taxes. Have you ever heard a business owner celebrating a tax refund on their business taxes? Probably not and probably never will. A business without taxes is one that simply isn’t playing by the rules. 

Fortunately, business taxes in Texas aren’t near as bad and complicated as they are in other states. However, as a business owner, having a professional to help with the filing and tracking of when your business taxes are due is always recommended. A professional can give you advise and answer concerns and questions about your business taxes that you may otherwise go at blindly, hoping for the best. 

While these shouldn’t be used as the complete answer, we have a few common questions here with basic answers on business taxes. Still, taxes are serious, so seeking the advice of a professional tax consultant is recommended if you need more accurate information. 

How much money does a small business have to make to file taxes?

There isn’t a formula or set rate for small business taxes for an entrepreneur or business owner to determine how much income can be earn without being required pay taxes. There are many variables that impact business earnings and business taxes.

As an independent contractor or sole proprietor, anything you earn up to and over $400 is considered to be taxable small business income. On a 1040 form, your taxable income is the final amount of income. It is subject to business taxes after all deductions and exemptions.

Other than using a professional tax consultant, you can review each line of your 1040 form and omit the business income. This will provide you a reasonable estimate for each line item.  So, one example  would be ending up an estimated taxable income of a negative $10,000, you would have a $10,000 net profit and would not have any income tax due. 

How long can a business go without filing taxes?

The average length of time that a business can get away with not filing their IRS taxes is six years. Some businesses will get notified by the IRS sooner, some could go longer. The end result being that every business will get noticed at some point. 

Of course, the IRS and tax professionals will recommend any business owner to file as soon as possible, current, and back taxes. Address the issue before the IRS does won’t be as damaging and you’ll have a better opportunity of working out a reasonable payment plan with the IRS. 

How do business owners pay less taxes?

As a small business owner, you are “the” person for anything to do with your business. The keeper of all and the master of none, especially when it comes to business taxes. Taxes are stressful for all of us, but for a small business owner, they can be even more stressful. 

Sadly but thankfully, there are many strategies for saving on what you pay in business taxes, many of them you may not even realize are available. A few methods you should check into are: 

Hire a Family Member

A great tax reduction on small busines taxes is hiring a family member.  The IRS (Internal Revenue Service) allocates options that provide you an income tax shelter, even if you hire your kids.  

Implement a Retirement Plan

When you were employed, you may have had a 401(k) plan with your employer that they matched. Now, you’re a small business owner, that perk is gone, but you can remedy that fairly easy. 

There are options for retirement accounts that will allow you to maximize your retirement savings while you gain tax benefits as a business owner. The IRS website offers details on this, but some of those retirement plans to consider are: 

  • SEP (Simplified Employee Pension Plan)
  • An IRA 
  • A Roth IRA
  • 403(b) 

Healthcare Needs Savings

Your small business taxes can be reduced by placing money aside for possible future healthcare needs. One of the biggest and fasted increases today are medical costs, and by setting money aside now for those possible healthcare needs can help you with our small business taxes. One way to accomplish this is with a HSA (Health Savings Account) with an eligible health plan.

Your Business Structure

You lost your benefit of your employer paying part of your taxes when you became a small business owner. You may not have even realized they were paying part of them, and now you have to pick up that part of basic business taxes that include Medicare and Social Security taxes. 

If your business is set up as a LLC (Limited Liability Company), those business taxes are still required, however, there are some circumstances where you could possibly eliminate the employer-half, a smart switch for a small business owner. Visit the IRS website for more details or choose a tax professional that can walk you through this process. 

Travel Expense Deductions

If your small business requires you to travel a lot, your business taxes could be reduced. Your business travel expenses are fully deductible, and if you combine personal travel with your business travel, you get a bit of a bonus. 

calculating taxes

What can a business owner write off?

Tax deductions are a dream for anyone, individuals, or businesses. Below we have listed some common write-offs available for partnerships or LLC businesses and sole proprietors. Before you take these deductions, check the IRS website or with a tax professional that your business is eligible. When you can make the most of all tax deductions available to you, you can save a lot of money! 

  • Advertising and promotions
  • Bank Fees
  • Business insurance
  • Business interest 
  • Business meals and entertainment
  • Business use of your personal car
  • Contract Labor
  • Depreciation of business equipment
  • Education
  • Home office use
  • Interest on business credit cards and loans
  • Legal fees
  • Moving and relocation expenses
  • Rental expenses (building, equipment)
  • Salaries and employee benefits
  • Communication expenses (cell phone, office phone, internet) 
  • Travel expenses for business

Taxes are confusing and the process can be scary. If you don’t understand the verbiage on the IRS website, seek the assistance of a professional tax consultant.  So, maybe you’re considering sidestepping the process and not file your taxes. You’re asking yourself, “As a small business owner, can I go to jail for not filing taxes?”Yes, by not filing your federal tax return, personal or business, you could face up to one year for every year not filed. In addition, you will have fines and penalties, risk losing your business and home.  When it comes to business taxes vs personal taxes, the IRS has no mercy, and everyone is required to pay their share of taxes. Need help with your business in Dallas, TX? Call (214) 382-2964 today!