Whether or not you’re a business owner, the first quarter of a new calendar year often means you’ve got taxes on the brain. While personal and business taxes are both parts of financial life, business taxes come with their own unique challenges and opportunities. As always, education is key. What you may lack in experience can be supplemented with taking the time to learn more.
It’s still true, though, that the best option is usually to hire a professional tax advisor in addition to due diligence. A quality tax pro will have years of relevant experience and in-depth knowledge of complex tax law and procedures.
A quick Google search will tell you — there is no shortage of tax preparers out there. Knowing what to look for isn’t always obvious, but it can make a significant difference. In this post, we’ll go over the things to look for in hiring a tax professional to help your business with its taxes.
First, we’ll go over some business tax basics to highlight the facts when it comes to your business’s finances.
Which taxes you pay and how you pay them will depend on a few key factors. For example, there are different types of business taxes for different business structures. The rules also depend on where your business is located. Businesses need to pay federal, state and local taxes, and different states have different tax laws.
Business Income Tax
Not surprising, it’s the same for business and personal taxes; preparing returns means figuring what you need to pay in taxes on income. Business income is defined as the profit your business makes, which determines how much you’ll owe when you pay income taxes.
How you pay these depends in part on the size of your business. For small businesses, business owners simply pay income tax through their personal income tax return. This is true for a single-member LLC or sole proprietorship.
For larger corporations with more than one owner, partners must file special partnership business tax returns. This is in addition to filing and paying through their individual personal returns and is sometimes called an information return.
If you’re a business owner, you’re also probably required to pay self-employment tax. This is separate from income tax, and it’s your way of paying social security and medicare tax. Employees usually have some of their pay withheld to pay these taxes, and the self-employment tax mitigates this for the employers of small businesses.
Another way that this tax differs from your federal income tax is that you must pay estimated tax. This means making regular estimated payments four times throughout the year. There are pre-defined quarterly deadlines for these payments, and there’s a penalty for missing them.
If you fall into the category of someone who owns a corporation but works as an employee, you will not have to pay this tax.
This is an interesting one that doesn’t apply to non-business owners. An excise tax is what a business must pay for using or consuming certain products. These are things like environmental products, air transportation, and ozone-depleting chemicals.
Business Property Tax
This is a type of local tax that businesses must pay for owning property. It functions much like a personal property tax does; the amount owed is determined by the assessed value of the property.
The way this tax functions depends heavily on the state your business operates in. If your state requires you to collect sales tax, you’ll have to set up a system for collecting, reporting and paying the department of revenue.
Like the self-employment tax, this is something that must be regularly paid throughout the year. It’s also important to note that some items are exempt from state sales tax and that many online sales are becoming subject to sales tax. The specific tax requirements will depend on your state.
Does My Business Need a Tax Advisor?
Some people might assume that feeling stressed and overwhelmed during tax season is how it has to be, but this doesn’t have to be the case. Whether it’s for a massive corporation or a small business, a business tax advisor can make a world of difference.
Most people have similar goals when it comes to doing their business taxes. They want to save as much money as possible and make the process as headache-free as possible. These are both things that a tax professional is perfectly equipped to help with.
The fact that tax professionals are so familiar and experienced with tax code means that they’re much more efficient at completing tax forms and filing returns, saving you time and frustration.
Finally, they will also be able to help you in the event of an audit from the IRS. Preparing your business for this possibility is a wise move and will keep you from getting caught off guard.
What to Look for in Business Tax Advisors
Hiring a tax planning professional is one of the best steps you can take toward putting your business in the best financial position possible. However, not all tax professionals are created equal.
At the most basic level, you should make sure that the tax professional you are going to work with as a valid preparer tax identification number (PTIN). The IRS requires all tax preparers to have one of these numbers. While this is a necessary credential, it’s also at the lowest level. For the best service and outcome, choose a professional that has additional credentials.
There are three main types of tax professionals that can help you on your tax journey. A tax attorney, a certified public accountant (CPA), and an enrolled agent.
Regardless of which type of tax professional you hire, you should try to find one that specializes in business tax. Many tax advisors mostly have experience with personal taxes and may not be able to give you the best advice for your business.
How a Tax Advisor Will Help Your Business
We’ve mentioned before that tax planning is something best done year-round instead of only at tax season. This is something a highly-qualified tax advisor will understand. They’ll be ready to guide you at any time of the year — before, during, and after tax time. So, meeting with your tax advisor at least every quarter is a smart place to start.
When it’s time to prepare to file your taxes for the year, your tax professional will be the one to help you prepare. This is especially helpful if you’re paying business taxes via your personal tax return. Having the same person do both of these will help in streamlining the process and getting you better savings.
The tax professional’s work doesn’t always end after you’ve filed, either. You’ll want to be able to count on your advisor if you happen to get audited. This means finding a tax professional that is legally able to represent you before the IRS. You don’t want to be caught without professional guidance in the face of an audit. Any one of the three types of tax professionals we listed above, tax attorney, CPA, or enrolled agent, will be able to do this for you.
Taxes aren’t exciting for anybody, but they’re here to stay. Fortunately, a little due diligence will go a long way. It all starts with some basic education. It takes some understanding of the laws surrounding taxes before you can begin to prepare yourself for them. And what comes next is the right professional guidance.
Tax preparation software has made it easier than ever to prepare a tax return. Yet, it still takes years of relevant experience to know how to best handle tax scenarios and get the biggest savings. This is especially true for business tax, where the tax code is more complex.
Finally, finding a tax advisor you can trust and rely on is the golden ticket. You want to protect your finances and sensitive information with someone on your side who has a proven track record of success. After all, it’s about relationships with a foundation of trust. So if you don’t already have one, take the time to find an experienced professional that will steer your business to financial security and success.
We Can Help
Choosing someone to help plan your taxes is no easy feat, but that’s why we aim to be as open and available as possible. We hope that this post shed some light on an intimidating subject.
The Saddock Advisory team invites you to get in touch with us so you can learn more about our history, our services, and how we can help you! Fill out our contact form here and we’ll be in touch shortly.