Every business, no matter how small, has several tax obligations that it must meet. This includes taxes at the federal, state, and sometimes local level along with payroll taxes. At BMH Accounting, we understand that keeping track of so many obligations can be challenging. However, doing so is essential to avoid fines and possibly other sanctions from the Internal Revenue Service (IRS) and your state or local governments.
In terms of withholding from employee paychecks, you must deduct federal tax, state tax if applicable, social security, and Medicare. Below we outline how to determine your tax obligation at both the federal and state levels. Before you arrange to pay any taxes, however, you must first choose your tax year.
How to Choose the Tax Year Most Appropriate for Your Business
Choosing a tax year to coincide with the 12-month calendar year is the most common among business owners. This typically works well for companies without special accounting situations that would require the business owner to choose another alternative. If your accounting cycle doesn’t end on December 31, using a fiscal year instead of a calendar year will work better for you. If you have a special situation such as operating your business only part of the year due to starting or stopping it, you should select a short tax year for your filing status.
The type of structure you choose for your business determines the categories of taxes you pay and how much you pay for them. You may be subject to one or more of the following types of federal taxes:
Employer tax: This covers specific payments you must make such as contributing to the workers’ compensation and federal unemployment programs.
Estimated tax: As a self-employed business owner, you must make estimated quarterly tax payments to the IRS.
Excise tax: The IRS only charges this on specific services or goods such as alcohol and tobacco.
Income tax: This is the amount of federal tax withheld from employee paychecks based on their income and number of exemptions.
Self-employment tax: People who employ themselves are subject to the full amount of social security and Medicare, currently 12.4 and 2.9 percent.
Each state creates and enforces its own rules regarding employment taxes. If your state collects these taxes, the types and amounts you pay will depend on your business structure and physical location. If you’re a sole proprietor, for example, you will pay state taxes via estimated payments and include your income and expenses on your personal tax form. Corporations, on the other hand, pay taxes as a separate entity from the people who own the business.
Get Help with Proactive Tax Planning and Meeting Your Tax Obligation
BMH Accounting is available now to assist your small business with strategy to reduce your tax burden and gain a better understanding of the tax obligations you face. Please contact us today to request your initial consultation.
Want to see improvement in your business or brand’s bottom line? Pay attention to your company’sFinancial Variables and discuss these influences with a qualified accounting professional to determine if your revenues can be improved, or to learn more.
Five financial variables that can improve your bottom line are:
1) Look at your Profit & Loss Statement
When was the last time you looked at your Profit and Loss (P&L) statement? This document lays out your revenues, expenses, and costs during a determined period of time.
All public companies are responsible for issuing these statements quarterly, as well as at the end of the fiscal year. Reviewing and understanding a P&L statement can help you evaluate your business’ fiscal health.
2) Know the Shape of your Finances
Over half of small businesses are negatively impacted by late payments; how are your finances? Make a resolution to pay invoices on time and save late fees and charges. These expenses impact your cash flow and bottom line, over time.
3) Get Familiar with Your Cash Conversion Cycle
The cash conversion cycle (CCC) measures the amount of time that it takes to move inventory, get paid, and, in turn, pay your own creditors. This cash flow determines how long between payments as well as how quickly you can turn-over your product.
A familiarity with your CCC can indicate if you have a healthy cash flow as well as how long your company can survive in tight times.
4) Become More Aware
Part of your business self-awareness comes from checking out your financials. Develop and revisit a cash flow forecast and business budget for your company.
It makes good sense to set aside a time, such as the end of the fiscal year, to review all your management practices and financial habits with a reliable and reputable accountant. Don’t have an accountant? Make now the time to retain one.
5) Tally Cash on Hand
Do you know how much cash and liquid assets you have on-hand? It may surprise you; sometimes, companies don’t have as much readily available capital as they think – and need- which could put you in a bind if business is slow.
Don’t risk the fiscal health of your company; take time to count up what you have on hand for liquid assets, i.e. cash, and begin to think about setting up a rainy-day fund.
Making changes or deciphering financials for your business can be confusing; make sure to discuss your options further with your accountant before altering the way you operate your company. These industry experts may be able to help guide and advise you on the best ways to reach a better bottom line.
Want to learn more about these financial variables, or other ways to enhance the condition of your company? Talk to the accounting professionals atBMH Accounting; they are familiar with financial variables that can make a significant difference in the overall value of your business investment.
It makes sense to consider Hiring an Accountant for year-round provision, rather than just at tax time. There are numerous benefits of hiring a year-round accountant for your business, and the cost is a prudent investment to make in your company, brand, or business.
Some benefits of hiring a year-round accountant include:
One of the specialized accounting services that accountants offer is money management. When you are in business, how you manage money can make or break your success. An accountant is a shrewd and smart resource that can help you manage money well.
The first step in starting a business is typically a business plan. Consult with an accountant for their input at this very critical phase of your company. An accountant can help outline the financial parts of the plan- and make sure that your investment is a pragmatic one with potential returns. They will be able to explain and navigate the processes associated with business loans and financing, too.
Just getting started? An accountant can make sense of a wide range of bookkeeping responsibilities that you may not even realize you have. You will need to set up an accounting system and appropriate accounting software to implement this. An accountant can make the transition for you.
You may find that you are in over your head trying to maintain books as your company grows and becomes larger. An accountant can set-up payroll, benefits, and reporting systems so that it runs smoothly as your business burgeons. They may also advise you as to the best strategies to keep your company fiscally healthy.
An accountant is an excellent ally when you are planning retirement. They can help you prepare in the years, months, or weeks leading up to leaving your job, and help advise you on your retirement plan options. They may also be able to guide personal investments that can grow and mature into your retirement savings. If selling your business in order to retire, they can be an invaluable resource during that often-complex process, also.
Tax Time and Audits
Naturally, you want an accountant on your team at tax time. An incidental audit can tie you up for weeks and cause you undue hassle and headache. Accountants are familiar with the process and can stay abreast of the most recent tax info that might make a difference for you at year’s end. Let your accountant deal with the IRS and you can focus on your business.
Consider the benefits of having a year-round accountant and talk to the professionals at BMH Accounting to learn more. From specialized accounting services to a tax time audit, don’t go it alone. Rely on the expertise of a reputable accounting firm; call to learn more today.
When it comes to Tax Planning, being proactive pays. Being vigilant and precise with your tax reporting and expenses can minimize your tax liabilities- and save you money at year’s end. Tax prep and documentation should not be something that only occurs at tax-time; proactive tax planning is something that happens year-round to avoid nasty penalties and maximize deductions.
Some tax planning tips include:
Prepare to be vigilant about keeping track of business expenses- which can be a bear! A good rule of thumb is that if you plan to deduct an expense, you will need some sort of proof of the purchase, like a receipt, invoice, or canceled check. You can also use bank records, if needed, to document purchases related to business that you do not have an actual receipt for when it comes time to complete or file your taxes and reports.
Always save invoices or receipts for all your business-related purchases. It helps to write and attach a note explaining the purchase for documenting later, when you may have forgotten the specifics surrounding the expense.
Make sure to keep personal accounts separate from business accounts whenever possible. It can make accurate record-keeping nearly impossible and you could suffer by missing out on certain business deductions this way.
Don’t misclassify your workers as the income-tax withholding and employment taxes are quite different. While you do withhold federal income tax and FICA taxes from your employees, you also are responsible for unemployment taxes and your own share of FICA. When you are dealing with staff that are actually independent contractors, you are not required to withhold taxes, making the individual responsible for their own self-employment tax liability. This also eliminates the need to pay separate FICA or unemployment taxes. Talk to your accounting professional to learn more.
Pay the employment taxes that you collect from the wages of your employees and staff for federal income tax and FICA (Social Security and Medicare) taxes promptly. The IRS is not tolerant of delayed payment and noncompliance penalties can be severe.
Industry experts offer tax tips for small businesses, including that you need to be careful and cautious when making tax deductions. This may look suspicious and trigger an audit, further reinforcing the need for organized documentation. The IRS frequently assesses business tax deductions, like vehicle use and travel expenses, to ensure you are sticking to their guidelines and limits.
Consider Hiring Help
Take the worry out of your business taxes with some professional help from BMH Accounting. If you own or operate a company or brand, outsourcing your financials and tax reports to a certified accountant makes good business sense. Don’t risk penalties and fines by going it alone; hire a tax professional today.
When it comes to employee reimbursements, you must be careful that they comply with current tax law and IRS tax regulations. If not documented and posted correctly, expense reimbursements may get confused for income, which can create a mess. Furthermore, when your staff struggles for prompt and accurate reimbursements, it can create hostility and angst at the workplace; make things a lot easier with the services of a tax or accounting professional and a solid accountable plan.
Using an accountable plan to document and pay employee expense reimbursements means that the payment is not part of your employees’ wages which makes them exempt from taxation, like federal income or employment taxes. This has benefits for both the employee and your company, as well. If you choose not to use an accountable plan for reimbursements, the payments are subject to taxes and considered part of your staff’s taxable income.
Remember and remind employees as needed that each reimbursed expense under your accountable plan needs to be connected to business; the definition of a business connection is that it is a legitimate expense- allowable as a deduction- and covered or incurred by your employee while they are performing services, tasks, or work for your company. Some examples might be hotel accommodations during a business trip, meals during work-related events, or gas driving to job sites or to visit clients. These expenses should be easily documented with receipts, bills, or statements.
Depending on the accountability system that you have in place for your Employee Reimbursements, it is key that a paper-trail documents the expenses and that any excesses are accounted for and paid-back. There are some IRS guidelines that can be adapted and adopted to your workplace- or you can set your own parameters for reimbursing employees quickly and also tracking expenses accurately. It is key to keep these matters clear and concise for when tax time rolls around.
Just as it is important for your employees to substantiate expenses promptly, it is important that you do what you can to expedite reimbursements, too. A reasonable time frame for substantiation of expenses is within 60 days, and any overage should be paid within 120 days, in most cases.
Your employees may deduct their work-related expenses, but it requires itemization.
The deduction for these expenditures is limited to the amount that is more than 2% of their adjusted gross income.
Make sure that your reimbursement arrangements meet IRS requirements for an accountable plan, which may have potential tax advantages for you.
The safest way to deal with employee reimbursements is with a reputable and reliable tax or accounting professional. Talk to the experts at BMH Accounting to learn more and escape the worry surrounding employee reimbursements.