Small businesses have a lot to consider as they work to bring in profits and stay viable. Many small business owners know that there are different tax obligations that they may face depending on various factors such as whether they have employees, how the company is organized, and whether they are selling goods or services to name a few.
There are a few common tax considerations that most small businesses can benefit from knowing about.
1. Your Business Entity Affects Your Taxes
The first thing to keep in mind is that the business entity you choose will determine how you and your business are taxed. The choice of entity impacts your Social Security and Medicare taxes as well as your income taxes. For instance, corporations often face “double tax,” whereas Limited Liability Companies are “pass through” entities, and generally do not pay taxes, but the members of the LLC are taxed based on the income they earn from the company.
If you have an existing business, you can change your business structure. If you are just beginning to explore, you should determine which structure is best for your specific business plan.
2. You Can Claim Business Losses
Did you know that a really bad year of business could result in you owing no taxes at all? If you operate at a loss that is significant enough, you may also be able to generate a net operating loss that would potentially result in a cash refund. There are many deductions available to small businesses that individual filers do not get to take advantage of. Luckily, the IRS maintains an updated article on business deductions.
3. You may be paying too much if you don’t have a retirement plan
Did you know that qualified retirement plans are tax deductible? It’s possible to be saving for your retirement while avoiding taxes on that money. You will likely have to pay taxes later on when you start to take funds from the retirement account, but for now, you’ll save yourself some money on taxes.
These are a couple of tax issues that business owners should know about. Your business entity will affect you, but running a business may also help you claim losses and get a refund when you have a bad year. You may even be able to save money on taxes with a retirement account. These are all factors to consider as you begin working on your taxes and planning for the future.
There are many other important and often overlooked considerations for small business owners. The attorneys at Gudeman & Associates can help you stay up-to-date with Michigan business law, and offer a wide range of services for new and existing Michigan business owners. Whether you are just getting started, or have been operating for years, Gudeman & Associates has the tools and experience to help you make your business as successful as possible. Contact us today to schedule a free 30-minute consultation.