If you are running a small business, you understand that every dime counts. It is not uncommon for small business owners to wonder how much they should set aside for their small business taxes, especially if they are just getting started.
Well, there is no straightforward answer to this question. Here are a few tips that can help you draft a saving plan for your small business tax.
Be clear about your tax obligations
You and your business are required to pay different types of taxes to the IRS. These include your self-employment tax and income tax. It helps to know where the line between these two taxes lies. And if you have employees, keep in mind that you will have payroll tax to deal with too.
But, federal taxes are just one part of the pie. Depending on the nature of your business, you will also have to pay the following state and local taxes: income tax, franchise tax, sales tax, excise tax and property tax among others. Having a clear understanding of your tax obligations can help make an informed decision when coming up with a saving plan for your taxes.
Come up with a saving method
Of course, you can save money for your small business taxes as often as you deem necessary depending on your cash flow as well as how long you have been in business. For instance, if you are filing tax returns for the first time, you may want to consider the per-pay method. This is because estimating the total income (and, thus, owed taxes) can be quite difficult if your business is relatively new.
On the other hand, if you have been in business for a while, and you do not expect any drastic change in income, then you may consider using the yearly or semi-yearly method. The greatest advantage of this method is that you only need to calculate the tax owed once or twice for the entire year.
Budgeting money for a small business tax can be a daunting task. Find out how you can avoid costly mistakes while preparing your small business tax.