For a small business owner, paying taxes can be painful and challenging, unless you make a wise move to secure the services of a professional CPA. It is important to know that the government tax option for small businesses depends on the business structure.
Types of Business Structures and Their Tax Option
When a business is started, the owner (or owners) must select a specific type of business structure. Choosing a business structure has a direct impact on whether a business will be eligible for a tax refund. Here are five types of business structures and the tax option available to each:
- C-corporations file federal income taxes directly with the IRS, and because the corporation is taxed separately from the individual owners, an eligible tax refund comes directly back to the business.
- S-corporations pass any taxable income from the business to the individual shareholders. An S-corporation files a Form 1120S and the shareholders report their income on a Form K-1 to report the income on their individual returns. They are responsible to pay their individual taxes or receive a personal return if appropriate.
- Limited liability company (LLC) business owners report income from their business on their personal 1040s. They can receive a refund if they pay more taxes and withholdings than their tax liability.
- Partnerships, as unincorporated businesses, require individual business owners to pay taxes on their personal tax returns. A partnership files a Form 1065, and the partners use a Form K-1 to report their income. They can receive a refund if they pay more taxes and withholdings than their tax liability.
- Sole proprietorships report their income and expenses on their personal tax returns. They can receive a refund if they pay more taxes and withholdings than their tax liability.
Other Than the Income Tax Option, What Other Refunds Are Available?
Regardless of the business structure and its impact on the Federal Income tax option, a business could receive a payroll tax refund if payroll taxes for the business are overpaid. Likewise, a business could receive a refund of sales or excise taxes if they have been overpaid.
Tips to Maximize an Eligible Tax Refund
Regardless of business structure and its tax option, any tax refund that can be obtained can be maximized by:
- Checking for any available federal or state tax credits.
- Prepaying business expenses for the next year.
- Providing 401(k) plan matching for your employees.
- Offering incentives to employees, as a deductible business expense.
- Claiming a home office deduction if your home office is used for business purposes.
- Tracking and deducting business mileage.
Avoid all Tax Filing Mistakes for Any Tax Option
To avoid any tax filing issues with the IRS, avoid tax filing mistakes like misreporting income or failing to report all the businesses’ income. IRS rules no longer allow deducting 100 percent of meal expenses. Don’t overlook an eligible home office deduction. Don’t fail to track eligible business miles. Don’t overlook all eligible business startup expenses. Don’t forget to include any carryover business deductions including capital losses, overlooked investment interest, or net operating losses. Keep all charitable contribution receipts. And certainly, don’t leave bookkeeping duties until the last minute.
Most important, be sure to get a professional CPA to assist and advise you.
Get Expert Accounting and Financial Assistance
Contact Doerhoff & Associates, CPA, based in Jefferson City, MO for professional accounting and financial assistance that you can count on. Doerhoff & Associates has one goal in mind, to provide comprehensive business accounting services designed specifically for your success.