Tax season can be daunting for new business owners. If you’ve never filed as a business owner before, you may have a few questions about the process. While a financial services specialist can help you prepare your documents for filing, reviewing this guide will help you better understand your needs.
What Small Business Owners Should Know About Taxes
Will I still pay taxes on inventory I didn’t sell?
You won’t be taxed on inventory directly, but having more merchandise will affect what you owe. For instance, the less you sell, the lower the cost of goods sold (COGS) expenses will be. This means your tax responsibility will likely be less than it would have been if you sold more.
What if I didn’t pay estimated taxes and don’t have enough to cover what I owe?
Unfortunately, you won’t know how much you’ll owe in taxes until filing in the spring of the following year. For this reason, it’s a good idea to put aside 25% to 30% of the income as it comes in.
This will ensure you can cover quarterly taxes and anything you might still owe during tax season. If you didn’t pay estimated taxes and don’t have the funds to cover what you owe, the IRS offers financial services such as installment plans.
Can I claim a home office deduction?
The IRS has strict rules about home offices. This part of the home must be your principal place of business or where clients visit. You can’t claim part of your rent or mortgage as a deduction if you also use half of the office as a home gym. If you do use the home office exclusively for business, the easiest way to determine the deduction is to multiply the square footage of the space by a rate of $5.
Which expenses can I claim?
There are many business-related expenses small business owners can deduct. These expenses should be reasonable and necessary to the nature of the operation.
Examples could be a new computer or other technology used exclusively for business purposes, equipment, inventory, gas, and vehicle maintenance. In addition, the fees for hired help, such as contractors who perform repairs to the building or professionals who provide financial services, can also be deducted.
Navigating tax preparation can be complex for small businesses, but Agents of Delaware will help. These business consultants provide New Castle, DE, business owners and entrepreneurs with a range of solutions, including business management and financial services. Request a consultation online or by calling (302) 544-4267.