Essential tips for managing your small business taxes

Understand your business structure

Most businesses fall into one of three categories:

• Limited Liability Company (LLC): A business structure that shields its owners from personal liability for business debts and lawsuits. It is a popular choice for small businesses because it offers flexibility in management and taxation.
• S Corporation: A tax election for qualified LLCs and corporations. S corporations pass corporate income, losses, deductions, and credits through to their shareholders on their personal tax returns. This avoids double taxation on corporate profits.
• Sole Proprietorship: A business owned and operated by one person. The business and its owner are considered one legal entity. There is no legal distinction between the business owner and the business for tax purposes. All business profits or losses are reported on the owner's personal tax return.

Claim business tax deductions

Businesses are able to claim tax deductions for a wide variety of expenses, particularly expenses incurred to produce additional income. Potential small business tax deductions include:

• Home office (This comes with a choice of a regular or simplified deduction method.)
• One-time deductions for equipment vs. depreciation of equipment, such as furniture and computers 
• Mileage
• Hotels and travel (air, train, auto)
• Depreciation of property
• In accordance with the IRS guidelines, if a client or customer defaults on a payment, businesses can deduct the cost of goods sold but not paid for. However, no deduction is allowed for services rendered to a client who doesn't pay.

Take advantage of business tax credits 

Unlike deductions, which reduce the amount of business income that is taxable, credits lower your tax. Many tax credits are tied to specific industries or types of businesses.

One of the most significant tax credits for small business owners is the Small Business Health Care Tax Credit, available for employers. Keep in mind that tax credits, as with other tax policies, might change.

Estimate taxes

As a business owner, your tax obligation is to pay taxes as you earn income. For that reason, if taxes aren’t being withheld from salaries or other payments, you need to pay estimated tax payments each quarter of the calendar year.

Figuring out what you owe each quarter requires looking at your expected adjusted gross income, taxable income, taxes, deductions and credits for the year. Each business and every situation is unique, so it’s important to consult a tax advisor for help in calculating the amount.

Pay state and local taxes

In addition to federal taxes, businesses need to pay state and local taxes, including income and employment taxes. Look up your state’s business-tax requirements.

Hire a tax professional

It’s beneficial to hire an accountant, even if you feel your business is not very complicated. Paying taxes, identifying deductions and keeping up to date with current business tax laws are serious responsibilities, and a tax professional can be a tremendous help.

Effectively managing your taxes can significantly impact your business's financial health. However, the tax code is complex and subject to change. To ensure you're optimizing your tax strategy, consult with a tax professional. They can provide personalized advice tailored to your specific business needs and help you navigate the intricacies of the tax code.