Tax Credits And Deductions You Should Know About for Your Business

Under U.S. tax law, corporations are subjected to U.S. Business Income Tax. Business income includes income from dividends, interest, and other sources of funds received during the normal course of operations.. Corporations are only entitled to claim the corporate tax credit if they meet certain requirements. These requirements generally vary among the types of corporations, partnerships, non-corporate entities, and individuals.   

While the vast majority of individuals pay their taxes on their own every year, very few have ever heard of anyone actually being forced to pay taxes. In fact, in most states the government holds the right to ask an individual to appear at their office and make payment of their taxes if they are unable to do so. In the end, however, many people end up having their small business taxes raised or paying far more than the required minimum.

When starting a business it is important to create and stick to a business budget, track expenses regularly and think of ways where you can save – because by thinking of ways to save you can increase business profits. One easy way to save when you are starting your business is to look for electric suppliers in your area with a competitive rate.

1. Business Tax Dos And Don’ts  

There are some dos and don’ts that businesses can follow to keep from having their business taxation raised too high. These practices, while not illegal, should still be kept in mind by all businesses. Below, you will find an explanation of the dos and don’ts of business taxation.

First, when it comes to business taxes businesses must make sure that all receipts for purchases are receipts that show the exact item that was purchased. If a business has to claim that the item was a tax deduction, such as a business earnings form, then the item must be itemized and documented in a way that will enable the business to calculate its tax liability. The IRS even has a checklist of the most standard forms that can be used to document these purchases.

Next, a business owner should remember that there are two different kinds of business taxes: personal income tax and self-employment tax. Personal income tax is determined by identifying all sources of income, including wages and salaries, capital gains, dividends, interest, and other miscellaneous receipts. Self-employment tax, by contrast, is calculated with the help of self-employed workers’ compensation information. By consulting the employee’s compensation manual, business owners can determine how much, if any, tax they may owe. If the amount owed is higher than the exemption amount, the employer must pay it; otherwise it is the employee who will be liable for the tax.

Business owners can always consult the IRS for professional advice about business taxation. While the IRS offers many resources to help businesses understand taxes, this does not mean that all advice is good. Businesses must learn early on the differences between personal and business taxation, and they must know when to claim deductions and when to wait to take them.

The most dramatic changes in business taxes have come from the cuts to the income tax. In recent years, most states have passed income tax cuts that have decreased tax liability for most business owners. In many states, the rate at which the tax is levied has been lowered, or the tax liability has been increased. Because of this drastic change, businesses are often surprised to learn that their annual state income tax bill actually exceeds their yearly federal tax bill!

Businesses also need to be aware of special situations that may apply to them. Many states, for example, allow businesses to deduct a portion of their gross receipts, or GST, for their tax preparation. This includes businesses that receive grants or scholarships. The tax code permits business owners to deduct business expenses related to real estate taxes, but not business taxes. For this reason, many companies hesitate to include this expense when filing their state income tax return. They may later discover that they actually need to deduct GST from their federal return, resulting in additional, higher taxes.

Every business owner should be aware of current tax law and be familiar with various strategies for reducing their tax liability. A business owner who neglects to become informed on current tax laws may find himself or her subject to costly audits by the Internal Revenue Service and state tax collectors. A business owner also has to keep abreast of state tax laws and any changes that may affect his business structure or his business deductions.

 2. Business Tax Credit And Deductions 

Under U.S. laws, corporations may claim all of the expenses that are incurred in the running of that business during the year.  There are few limitations to this principle, other that the carve out for expenses related to meals and entertainment that are incurred locally in the home town where the person who makes the charge lives.  This is different from similar expenses incurred while away from home.

Most businesses may also be able to claim credits for property and casualty losses incurred during the taxable period. They can also claim credits for foreign tax credits and depreciation which are mutually applicable with respect to their own assets and liabilities. Losses that are claimed by a taxpayer also need to be reported on Schedule M, U.S. Taxation Bulletin, part 5. If an individual loses his property or other assets and claims deductions for those losses, he needs to file a claim for deduction against his personal income tax and pay U.S. tax.