It’s exciting to start a new business venture, but it also causes new tax issues. Business taxpayers have more deduction opportunities, but also need to do more work to make sure they avoid tax problems.
Look out for the following tax issues when starting a new business.
Independent contractors and self-employed taxpayers must pay self-employment taxes. In 2019, your first $132,900 in wages are subject to the self-employment tax of 15.3%.
This tax obligation surprises entrepreneurs for two main reasons:
- Employees only pay half (7.65%) this amount because their employers pay the other half.
- These amounts are taken out of an employee’s wages before they even receive their paychecks, but self-employed taxpayers need to calculate these amounts and pay them after they’ve earned their wages.
Keep this extra cost in mind when deciding how much to charge for your goods or services.
Estimated Tax Payments
You need to pay quarterly estimated tax payments as a self-employed taxpayer. Watch out for two major issues regarding estimated taxes:
- There are a few different safe harbors you can meet that allow you to avoid paying underpayment penalties.
- Even if you avoid underpayment penalties, you may still have trouble paying a large tax bill when you file your taxes.
Business owners who skimp on estimated tax payments often run into tax debt problems. Try to avoid this by paying enough each quarter.
The filing threshold is generally the amount of the new standard deduction, which is $12,200 for single filers and double that amount for joint filers in 2019.
However, there are some special filing requirements you should also know about. One involves self-employment income of over $400. If you meet this requirement, you’ll need to file a tax return, even if you made less than your standard deduction amount.
Business Expense Deductions
Business tax deductions can be a gift and a curse. You’re allowed to deduct the cost of any ordinary and necessary business expenses, including office supplies, a new computer, or a home office deduction.
However, it takes more work to track these expenses and make sure you deduct them properly. It can also increase your risk of an IRS tax audit because self-employed taxpayers have more opportunities to take improper deductions.
If your business isn’t making a profit in the first few years, you should also be aware of the hobby loss rules that can limit your ability to take business expense deductions in certain cases.
Work with a qualified tax preparer to make sure your taxes are done right, and contact a tax attorney if you accumulate some IRS tax debt or need audit defense help.
Get help with IRS tax debt problems by calling The Gartzman Law Firm at (770) 939-7710. We can listen to your concerns and help you find the best tax resolution strategy for your case.