If you’re an entrepreneur, then you have to know all the ins and outs of your business and be prepared to face any financial or otherwise important challenge that might come your way. Entrepreneurs have a certain kind of financial mind — razor-sharp, inventive, and innovative. It’s not easy to build your own business from the ground up, and if you do, then you’ll owe it to outright business savvy and a penchant for hard work.
There’s one topic that every business owner should be well-versed in, though, and that goes for the big, the small, and the online businesses. And that massive topic is taxes. Taxes affect everyone in a society, on a personal and a business level, and they’re something that should be taken into consideration when you’re running a business and indeed even when you start the business.
Since tax rates are set by states alone, taxes will need to be navigated on a case-by-case (or state-by-state) basis, so each business needs to account for the regulations of the state that their business is based in Navigate to the Closest Grocery Store. Even if the state is based in one state, it can also still be operating in multiple states if there is inventory stored elsewhere, if the business sells products or services to customers in other states, or if there are facilities for the business located in other states as well.
Taxes can be a headache — that’s why they’ll need to be considered at the start of a business’ dealings. However, as businesses grow and expand, business owners might need to change or accommodate different state nexus’, which will be a more complex mathematical problem than taxes that are charged and acquired according to one state’s guidelines.
If you are an entrepreneur looking to start your own business or are looking to expand your business, then it’s always a good idea to look into how taxes will be affected for both the customer and the business itself. Here is your simple and quick guide to taxes for entrepreneurs!
What is Your Business Entity?
Once you’ve decided to start a business, it’s time to decide which kind of entity you will choose to establish your business. Depending on which you choose, you might have different regulations and rates on your taxes. This should be one of the first major decisions you make as a business owner.
One of the easiest and most popular ways is through an LLC, which stands for limited liability company. An LLC actually offers a lot of protection from the business, but functions in as flexible a way as a partnership. For first-time business owners, an LLC is a satisfactory entity to begin as.
If you have your sights on major success, then you might be ready to have your own corporation. If you’re thinking of starting a major business with the necessity of many employees, then a corporation might be the way to go. Keep in mind that taxes will be more of an issue financially, but it might all be worth it.
This means that you’ll have to really take your taxes into account because corporations usually have stricter tax regulations that they must adhere to. You’ll also have to be somewhat of a team player as well as an entrepreneur because you will have to factor in the opinions of the shareholders who are part of the corporation also.
Corporations also must pay taxes on their income, because of the dividends that are paid to shareholders, unless they liaise with the IRS regarding status as what is called an S Corporation.
Sole Proprietorships & Partnerships
Sole proprietorships are recognized as one of the easiest ways of starting a business, meaning that a sole proprietorship is not actually a legal entity. There are a few easy steps one must follow in order to establish a sole proprietorship. All a prospective business owner must do is to register the name of the business in their chosen state of operation and obtain a business license.
The negative aspect that is associated with sole proprietor status is that the business itself will be responsible for any debts that accrue.
A partnership is similar to the sole proprietor model except that two or more partners share the responsibility of owning and running the business.
Take Your Business Seriously
It goes without saying that if you decide to start a business, you should be prepared for what’s to come — which can include both successes and failures on a major scale.
If your business does have a particularly bad year, then there could be actions taken by the IRS — which will bring major financial consequences. If the business is falling behind or indebted, then the IRS could change your business’s classification from a business to a hobby, leaving you with many pieces of your business that you will need to pick up, which will in all likelihood be financial.
This isn’t to say that one bad year will ruin you, the IRS will not come calling until you’ve been falling behind for multiple years in a row. Make sure that you’re taking care to be realistic about the profits and spending of your business.
Keep Track of Your Income and Expenses
Of course, you’ll be excited once income from your business is a reality. But don’t spend it all at once or frivolously. Many business owners use much of the profits they’ve made, especially at the beginning of the business’ operation, to put back into the business.
You’ll also want to keep a close eye on expenses. Expenses are those costs that come from buying things for the business, to improve the business. If you don’t keep track of what can be expensed by tax season, you’re in for a major headache and a ton of calculations. Not only that, but you might be mismanaging the accounts of your business altogether.
You’ll need to account for all costs and profits to proceed successfully.