10 Commonly Asked Tax Questions for Small Businesses

There are a lot of things to manage when you are running your own business. It is almost impossible to have a good grasp of every single aspect. Tax is one such thing that every business owner has to deal with. Here are some of the most commonly asked tax questions for business owners.

1. Which tax forms should be filled out for business taxes?

This entirely depends on you type of business. Sole proprietors are supposed to fill out Schedule C which should be filed along with your personal tax form (form 1040). Partnerships or multi-member LLCs should file Form 1065 the partnership return along with schedule K-1 for each partner.

2. Which business expenses are deductible?

Most business expenses are deductible provided that they are necessary business operation. These may include office supplies or machines that keep the business running.

3. What is the impact of payment protection program on tax filings?

How a business uses funding from the pay check protection program affects tax filings. It also affects standard business deductions. Expenses such as rent or salaries cannot be deducted if the business used forgiven PPP funding to pay them.

4. Is it necessary to have an employer identification number to file taxes?

The employer identification number is used entirely by the IRS and banks for pay taxes. Sole proprietors without employee can file annual business returns using the social security numbers. LLCs, S-corp and C-corp require employer identification numbers to file taxes.

5. What is the effect leasing or owning on tax returns?

A small business may benefit from depreciation deductions by owning vehicles or equipment, leasing does not.

6. Is it necessary to have a CPA or tax preparation software to file tax returns?

Most small businesses use bookkeeping software and follow rules on tax forms to file taxes online. The decision to have an accountant solely depends on the business structure and nature of returns.

7. What are the types of business entities that business owners can use?

By using a corporation or a LLC, business owners may be able to save on taxes.

8. Is there an overlap between the different types of business entities?

There is a lot of overlap between corporation and LLC. Initially, LLCs and corporations were distinct entity types but later there were new additions to the way they operate hence some function similarly in one way or another.

9. Why would a business owner want to set up an entity?

Besides the tax savings, it offers an extra level of protection between the business owner’s personal assets and their business operation.

10. How can a business owner save on taxes with a specific entity?

Tax savings from a s-corp election can be done by both corporations and LLCs. The main objective is to save of the self-employment tax. By default, a business owner pays self- employment tax of 15% on the first 147000 dollars of taxable income. By doing an s-corp election, you can significantly reduce how much of your income you have to pay that 15% on.