Being a business owner can be difficult. The IRS can always dip into your bank accounts, and expenses have a tendency of creeping up on you without warning. You can protect your business by learning tax law. With a background in tax law, you can prevent these expenses from sneaking up on yourself – and possibly save on other expenses.
A professional accountant is a great business investment. It is difficult to file taxes. An accountant can help you save money. If you have a basic understanding of tax law, your company can save money all year.
How Much Tax Does Your Business Pay?
Depending on the activity of your business, you will need to pay different types of taxes. There are several types of taxes that businesses will have to pay:
- Federal taxes
- State taxes
- Local taxes
- Income taxes
- Property tax
- Sales tax
- Tax on self-employment
- Payroll tax
Let’s start with income taxes. Taxes are paid from the profits your company makes. The type of business will determine how much tax you must pay. There are three types of business: sole proprietorships, partnerships and Scorporations. Tax advantages will be available for each type of business, but there are also tax disadvantages. Talking with an accountant will help you to determine the best way forward.
Most states have a written law that requires you to pay sales tax to the state revenue department. However, the customer is responsible for this. The sales tax may be added to specific products or services depending on where they are located. The customer pays the sales tax and you report it to the revenue department. Many states now have laws that require you to also pay sales tax on online sales.
It’s important that you understand the legal consequences of not paying your taxes. This is not a matter that only affects the company’s owner. Stanton Goldberg does an excellent job explaining how the IRS uses the term “responsible persons” and how they are willing to assign tax payments to many people within the company. The entire company can be held responsible for your tax debt if you don’t pay them.
How do you file tax returns?
- You have three options for filing your taxes:
- Completed manually 1040 form
- TurboTax is a tax software
- Tax accountants who are professionals
Although it is free, you are more likely to make mistakes when filling out a 1040 form manually. If you only have a basic tax return, tax software may allow you to avoid paying any fees. The charges for larger tax returns will be between $30 and $100. It all depends on which software you choose. A professional tax accountant may be an option. Although this option is more expensive, it has the lowest chance of making mistakes. Many tax accountants will also hire tax lawyers to protect your rights before the courts in case the IRS audits you.
This doesn’t happen in all cases. There are situations when the tax accountant made mistakes and they tossed them out like dirty socks. This route is not the best. Do not hire anyone unlicensed or unqualified to handle your taxes. This requires special attention from someone who is familiar with the evolving tax laws.
What happens if you miss a payment?
You might be curious about what happens if you forget to pay a tax payment or don’t have enough money to make a deposit. The IRS adds a five percent fee to each month you miss a payment for tax. The IRS will also add $135 to the minimum amount or 100 percent of the tax owed. This percentage could reach as high as 25%. The amount you fail to pay will be subject to interest.
If you get behind, don’t panic. Keep your mind calm and pay taxes as soon as possible. You will need to do more each month so it is best to pay your taxes as soon as you can.
The penalties for those who ignore their taxes go up. Among the possible sanctions you could face are:
- Tax evasion charges
- Seizure your property
- Forfeiting your tax refund
- Revoking your passport
- Filing a federal tax lien
The IRS won’t usually take extreme measures if you can show them that you are willing to pay the taxes. These things are important to remember.
What should you do when the IRS notifies you?
If you get a notification letter from the IRS, you want to cooperate as best as possible with them. Do not let your emotions get out of control. If you are in the wrong, fighting against the IRS can be a losing situation. You should instead get in touch with them as soon possible to make arrangements for payments. This should be done professionally. They can be reached at 800-829-1040.
Let’s suppose that the IRS placed a tax lien against the property. A federal tax lien could be defined as the government placing a claim on your personal and business assets because you have failed to pay your tax debt. If you don’t have a balance in the books and have not received a bill, the IRS will not place a lien on your property. This happens when the IRS sends you bills and you don’t respond. The IRS will then come after you. To alert other creditors, they will issue a Federal Tax Lien notice to inform them that they have the first rights to your property.
This should help to clarify some of the confusion you may encounter regarding tax law for business. You shouldn’t have any problems paying your taxes on time. You will be paying your taxes quarterly as a business. This means that you have to pay them in four sessions over the course of the year. This reduces the amount of taxes you have to pay at the end of each year.