Business Taxes - Vyde

Do I Still Have To Pay Personal Income Taxes As A Small Business Owner?

Unfortunately, owning a small business does not exempt you from paying personal income taxes. Many business owners pay themselves a set salary from their business profits, which is considered taxable income. Other business owners (normally smaller businesses) just invest what is necessary to keep the business running and then keep the remainder of the profits as their pay. The type of business entity you chose when you formed your company determines exactly how your money is taxed. If your company is growing rapidly, you may want to reevaluate your business structure and change it if necessary. Here’s a quick overview of business structures and the tax implications of each one:

Sole Proprietors: A sole proprietor owns and operates a business on their own, which means they are personally responsible for all profits, losses, and debts for the company. Even if you haven’t established a formal business structure yet, if you’re making money working for yourself, you’ve got a sole proprietorship on your hands. Sole proprietors file their income taxes as individuals with a 1040, and use an additional Schedule C form to report their income and deductions. Sole proprietors are accountable for withholding and paying taxes, including self-employment and estimated quarterly taxes.

LLC: An LLC offers additional liability protection that a Sole Proprietorship does not. If your business is sued or runs into financial trouble, the business will be responsible (and not you personally). In addition, forming a corporation or LLC may lower your tax bill. For a single owned LLC, taxes are filed just like a sole proprietor (aka an individual). An LLC with multiple members would file a Form 1065 to establish a partnership.

S. Corporation: An S Corp is similar to an LLC in that it is treated as its own entity separate from the individual. Members of an S Corporation are paid just like employees and must file personal income taxes on the wages they receive. An S Corporation files a tax return but the profit or loss passes through a Schedule K-1 to the individual income tax return. Each shareholder who receives a K-1 must factor in the profit or loss in determining the amount of estimated tax payments to be paid.

C Corp: A C Corp is taxed on its income rather than a pass through entity. Profits are taxed when earned and taxed again when distributed, often called “double taxation.” Owners must pay estimated tax payments based on the profit. Using this structure, the entity files a standalone tax return and pays taxes at the corporate level.

Top 4 Quick & Easy Ways to Pay Your Tax Bill

Tax season doesn’t equate to a refund for everybody. If you owe a tax bill this year, the IRS offers methods of quick and easy payment. No matter how you deliver your payment–online, on your smartphone, or delivery by horseback, make sure your tax bill is paid by April 18th.

DirectPay. The quickest and easiest method of payment, this can be used to pay your individual tax bill, or your estimated quarterly taxes. No need to register, you’ll receive instant confirmation upon payment.
IRS2Go App. Download the free app to your smartphone and pay your tax bill by credit or debit card quickly and on-time. The app can be downloaded from the Apple App store, Google Play, or Amazon and is available for all devices.
Credit or Debit Card. These standard service providers are safe and secure, but come with a small processing fee. Most fees are around $2.50.
Pay when you E-file. If you file your tax return electronically, you can pay your tax bill right then and there, or even schedule it for a later date. Fund are taken directly from the bank account information you enter. Many tax return softwares like Turbotax also allow you to pay your tax bill when you e-file.

Can’t pay your full tax bill right now? You can set up a payment plan with the IRS to pay your tax bill over time. Learn how to do that here.

Weren’t able to talk to a virtual bookkeeper and a little behind on last year’s taxes? Learn how to pay last year’s tax bill here.

How Do I File Last Year’s Taxes Online?

It’s never too late to file overdue tax returns. Of course, filing all of your taxes by the April 15th (April 18 for 2016) deadline is always the best way to keep yourself out of hot water with the IRS. But, if you still haven’t filed a previous year’s tax returns, you still can and should to take care of it as soon as possible.

Here are a few quick steps to file last year’s taxes online:

Gather your documents. Same process as any other year, you’ll need all of your documentation before you can file last year’s taxes online. Gather W-2s, 1099s, and any other tax paperwork you received for the year you missed. If you have deductions you plan to claim, you’ll also need your receipts and documentation of those items. If you’re missing any W-2s or 1099s, you can request them from the IRS by filling out a Form 4506-T. Keep in mind that it can take the IRS up to 45 days to process your request.
Download previous year’s tax forms. In order to file last year’s taxes online, you must use the original tax forms from the year you missed. You can search for and download those from the IRS website.
Prepare back tax returns. As you’re preparing last year’s taxes, you cannot use this year’s tax instructions. Because tax laws change every year, you’ll want to make sure you are following the correct year’s instructions as you’re inputting your data. Online accounting software like Turbotax can walk you through your taxes and help you file last year’s taxes online. Vyde also offers catch up tax preparation and virtual bookkeeping.
Submit your tax forms. Send your forms to the address listed on the Form 1040 instructions. If you’re filing online, most tax softwares can submit your tax forms for you. If you owe taxes, try to send as large of payment as possible to avoid additional penalties and interest. After the IRS receives your taxes, they will notify you of the exact penalty you must pay for being late.

For more information on how to file last year’s taxes online, visit the IRS website.

How to Pay the IRS if You Owe Money on Your Federal Taxes

If you’re not receiving a refund on your federal taxes this year and just found out that you’ll actually owe money to the IRS, you’ll need to get that payment in as soon as possible. This is a common scenario for small business owners, self-employed taxpayers, and those who have held too little money withheld from their regular paychecks for the past year.

If you owe money on your federal taxes and need to pay the IRS, there are a few ways to go about this:

IRS Direct Pay: The simplest and quickest way is to visit the IRS website and choose the Direct Pay option. This will pull money directly from your bank account at no additional cost to you. The Direct Pay option also allows you to pay your federal taxes with a credit or debit card.
EFTPS: You can also use The Electronic Federal Tax Payment System (EFTPS) to pay your federal tax bill. This secure government website allows taxpayers to submit their payments electronically. To enroll, or for more information on enrollment, visit EFTPS or call EFTPS Customer Service to request an enrollment form: 1-800-555-4477

Pay by Check or Money Order: If you choose to mail your federal tax payment, make your check or money order out to the US Treasury. Do not use staples or paperclips to attach the check to your return. You’ll also need to include your name, address, daytime phone number, Social Security number or EIN, tax period and related tax form or notice number on your form of payment. Mail your payment to the address listed on the notice or instructions.
Same Day Wire Payment: Same-Day Taxpayer Worksheet to complete your transaction. If you are paying for more than one tax form or tax period, complete a separate worksheet for each payment.
Auto-Pay through your tax preparation software: Many tax preparation software programs give you the option of making the federal tax payment to the IRS for you. Turbotax and TaxAct both offer this option when you reach the end of your tax forms.

If you are unable to make your payment in full, visit this post for information on setting up a payment plan with IRS.

Still confused? We can help you make your Federal Tax Payment to the IRS if you are unable to use any of the methods listed above. If you owe money to the state, this post will direct you to the proper place to submit your payment.

Do I Have to Send 1099 Forms to Contractors Paid Via Credit Card or PayPal?

The deadline for mailing 1099s to contractors for your small business is February 2nd this year, a few days later than the usual January 31st deadline. Before you prepare all of those forms just yet, you’ll want to read up on the regulations concerning contractors paid by credit card or PayPal.

You actually do not have to send 1099 Forms to contractors paid this way. The IRS does not require you to send a form to independent contractors or unincorporated LLCS, even if you paid them more than $600 last year.

Of course, that money is still accounted for and taxed somewhere, right? In fact, the credit card companies and PayPal will handle all the required reporting for these contractor payments. These companies issue a specific kind of 1099 form, called the 1099-K instead.

Instructions for IRS 1099-MISC form can be found here (PDF).

Should I Send a 1099 Form Anyway?

When in doubt, send it out. You may still want to send a 1099-Misc form for contractors you paid more than $600 last year, and that’s completely fine. Your accountant may encourage you to do so, even though it is not technically required.

What if I am the Contractor or Freelancer Receiving the 1099 Form?

If you’re on the other end of the spectrum, and you receive a 1099 from the employer and a 1099-K from PayPal, things can get tricky. When preparing your income tax return, you’ll need to be careful to not double report the income. If you know payment from a received 1099-Misc form was actually paid through a credit card, you’ll just make sure not to add the total of both forms. If you don’t receive a 1099-K from PayPal or a credit card company, you’ll still need to report the income. The key is to not add your 1099-K income to your 1099-Misc income to avoid any discrepancies.

Income Tax Checklist: What Your Accountant Needs to File Your Income Taxes

It’s everyone’s favorite season! TAX TIME! No more going through your small business bookkeeping and scrambling to find all of the important financial documents you need to file your income taxes, only to have your accountant call and tell you he needs just this one more thing. Here’s a comprehensive checklist of everything you’ll need to take to your accountant to get the job done accurately and on time.

5 Tips on Tracking and Separating Your Personal and Small Business Expenses

It can be all too easy to allow your personal expenses get tangled up in your small business expenses. You’re shopping at Costco, getting things for your family, when you remember you need a couple things for the office. Before long it all ends up in the same cart and on the same receipt. In the moment, it may seem like the easier route to take. However, not separating business expenses from personal expenses can cause quite a headache for small business accounting, especially when tax season comes.

Here are 5 tips on tracking and separating business expenses for your small business:

1. Set up separate bank accounts. As a small business owner, your first order of business should be to set up a separate bank account. To learn how to do that, visit this post. If you are diligent about keeping expenses separate, you should only need to review your business bank account statements during tax season to find deductions. If you have multiple charges for your business on your personal account, it can be hard to remember which ones were business expenses. Which makes it easier to miss important business deductions. Separating your business bank account from your personal account adds a layer of protection. Which is especially useful if the IRS audits your business.
2. Learn to use a business credit card. Credit card statements can act as a proof of purchase when you don’t have a receipt. We do not recommend going into credit card debt on your business credit card. However, any interest you pay on the card is tax deductible. Building up a line of credit, earning points for travel, and receiving cash back on purchases for your business are added benefits of using a business credit card.
3. Keep track of expenses–both separate and shared. You don’t have to write down every cent you spend each day, but you do need to keep track somehow. Track business expenses using a simple spreadsheet once a week, or use a budgeting app like Mint for instant updates on where you’re at with your budget. Some business expenses will inevitably overlap with personal expenses. Cell phone bills, portions of your mortgage/rent, utilities, internet, etc. are all examples of overlap. Choose one account to pay these bills from and be consistent. Keep track of bank statements and receipts to refer to during tax season. The most important part of small business accounting is to set aside time each week to take care of small business bookkeeping tasks. Letting too much time pass between purchases and recording them in your budget increases error.
4. Set your salary as a small business owner. This can be difficult to do if your business’ profit fluctuates significantly from month to month. However, setting a salary to pay yourself as a small business owner helps you know how much money you’ll be bringing home each month, and how much money you’ll have to run the business. Just because you set a salary doesn’t mean it’s carved in stone. You can revisit your salary and adjust it quarterly, bi-annually, or once a year.
5. Consult a professional. As your business grows, you’ll likely need to hire a professional accountant or bookkeeper to help you keep track of business expenses and finances, pay taxes, and invest your money wisely. Vyde offers free small business accounting advice from professional CPAs who can help you navigate your business finances and answer any questions you may have.

How to Plan a Simple Small Business Budget

Whether you’ve been running your small business for years or you’re an entrepreneur just getting your feet wet, the importance of a small business budget cannot be overstated. You have to learn how to manage money before you can earn (or save!) it. A budget can track cash on hand, expenses, and how much revenue you need to make your business profitable.

Your small business budget doesn’t have to be anything fancy. It can be scratched out on paper with a pencil, laid out in a spreadsheet, or created using business accounting software, like Quickbooks. Set budgets for a determined amount of time such as, monthly, quarterly or annually. It’s best to create a budget for each of those time periods. Then you can compare your actual and forecasted expenses.

How to Set Up a Small Business Budget

Spreadsheets can really help you tackle your small business budget. As you create your spreadsheet, you’ll want to begin with your fixed expenses. These will include rent, loan payments, subscription costs, and the like. Next are your variable expenses which would include things like utilities, supplies, and labor.

Set a Budget

You can determine your budgeted expenses by averaging past expenses in each category. These expenses will likely change from month to month as different needs for your business arise. If you are just starting out and don’t have any numbers to work with, you can research the costs associated with your industry. Determine the averages based on your research, and then factor those into your small business accounting.

Forecast your monthly revenue and place it in a subheading titled budgeted income. Then, at the end of the month you can enter your actual expenses and actual income. You can then compare your budget with your actual numbers.

Analyze your Budget

Off to the side of the budget income and actual income you’ll need to determine the difference. This is the number you’ll want to reflect on at the end of each month. It is important to determine why your budgeted and actual expenses and income don’t match. Then you should make changes in next month’s small business budget to decrease the difference. By determining the reason for the difference, you can either identify potential problems. Which will help you fix it, or capitalize on a potential opportunity you had not noticed.

Entrepreneurs are capable of creating and maintaining a small business budget. However, it’s best to consult a professional CPA or financial advisor to cover all of your bases. A CPA can factor in any important legal and financial obligations you may have with the IRS.

Having a small business budget can help your business in numerous ways. You can improve business operations, create accurate estimations and effectively manage your profits. All of which lead to a more successful business and life.

FAQs for Small Business Budgeting:

Why is a small business budget important?

A budget helps track cash flow, expenses, and revenue, crucial for business profitability and financial health.

What tools can I use to create a small business budget?

You can use spreadsheets, business accounting software like Quickbooks, or even pen and paper to draft your budget.

How do I set up a small business budget using spreadsheets?

Start with fixed expenses like rent and loan payments, then list variable expenses such as utilities and supplies.

How do I determine budgeted expenses if I’m just starting out?

Research industry costs to estimate averages for your expenses. Adjust as needed based on your business’s specific needs.

Why is it important to analyze budget variances?

Analyzing differences between budgeted and actual expenses/income helps identify potential problems or opportunities for improvement.

How to Get a Tax ID Number From the IRS For Your Small Business

Any new entrepreneur quickly realizes there is a lot to do to get your business up and going. Between websites and marketing, business licenses and bank accounts, there’s not a lot of time to focus on the tax aspect of your business until…well, tax time. When starting a small business, you’ll need to obtain a Federal Tax ID number from the IRS in order to file taxes and have your business be recognized. This is also referred to as EIN, or Employee Identification Number. Here’s how to get one:

Apply Online. The quickest and easiest way to obtain an EIN is through the IRS website. You must complete the application all at once because you can’t save it and return later. Have your Social Security Number handy, as well as your business information. Apply for your EIN online here.

Apply by Mail. A mail application for an EIN generally takes about four weeks to be processed. You’ll need to send a Form SS-4 as your application. See where to send your application to here.

Apply by Fax. Complete the SS-4 and send to the appropriate fax number found here. The turnaround time for an EIN application through fax is about four business days.

Apply by Telephone. This method is for international applicants only. International applicants may call 267-941-1099 (not a toll-free number) 6:00 a.m. to 11:00 p.m. (Eastern Time) Monday through Friday to obtain their EIN. The person applying for the EIN by telephone must have all information pertaining to the SS-4.

Other Important EIN Information

In order to obtain an EIN, your business must be located in the United States.
Only one EIN can be granted per eligible person per day
If you have misplaced your EIN, do not apply for a new one. Find out what to do if you’ve lost your EIN here.
For more information on obtaining an EIN, visit the IRS website.

Have a question about obtaining your Tax ID number from the IRS? Give us a call, we can help!

Frequently Asked Questions:

Why do I need a Tax ID number (EIN) for my small business?

A Tax ID number, also known as an EIN, is essential for filing taxes and establishing your business’s identity with the IRS.

What information do I need to apply for an EIN online?

To apply online, you’ll need your Social Security Number and your business information readily available.

How long does it take to get an EIN through the mail?

Generally, it takes about four weeks for the IRS to process a mail application for an EIN using Form SS-4.

Can I apply for an EIN by fax?

Yes, you can apply for an EIN by fax using Form SS-4. The turnaround time for fax applications is approximately four business days.

What should I do if I’ve lost my EIN?

If you’ve misplaced your EIN, do not apply for a new one. Instead, follow the appropriate steps outlined by the IRS to retrieve your lost EIN.

3 Tips on Tracking Mileage and Deducting Vehicle Expenses for Small Business Owners

Tracking mileage and vehicle expenses is not normally at the top of a small business owner’s to-do list. In fact, the job often gets lost in the day-to-day hustle and bustle of running a successful business. So how do you keep track now so you don’t have to panic come tax season?

1. Keep track of miles driven for business. If you track nothing else vehicle-related for the rest of the year, tracking mileage is the most important task. You cannot deduct vehicle expenses if you don’t know how many miles you’ve driven. The IRS wants to know the total number of miles you drove for your business in a given year in order for you to claim the Standard Mileage Rate. Your commute to and from the office is not deductible; however, almost all other business travel is. The most accurate records are those that are calculated the day you traveled for business or shortly after. While a paper and pencil mileage log works just as well as anything, there are several ways to utilize technology to keep track. Logging the miles on your GPS may provide you with the most accurate record without much maintenance. Apps like Mileage Log+ or Everlance automatically calculate your distances by entering where you’re leaving from and where you’re going.
2. Calculate all vehicle expenses.This may sound like a daunting task, but if you travel a lot for your small business, it’s not a bad idea. Keep a notebook in your car where you jot down miles driven, gas and oil changes, tire rotations, car washes, parking fees, registration and license fees, insurance payments, lease payments, repairs, and maintenance. Keep your receipts for these expenses as well. You may opt to use the Standard Mileage Rate come tax season, but it doesn’t hurt to have all records of vehicle expenses so you can compare the two methods and see which will offer the greatest deduction.
3. Use the Standard Mileage Rate. Rather than adding up all business-related vehicle expenses in a year, the IRS offers the Standard Mileage Rate which provides a 57.5 cent deduction (2015) for every mile driven for business in a year. To figure your standard mileage rate, simply take the number of miles driven total and multiply it by the current standard mileage rate (which changes every year). Most small business owners opt for this quick and easy method and even end up getting a larger deduction by going this route.

But what if I haven’t been tracking mileage or vehicle expenses?

You’re not completely out of luck if you haven’t been tracking mileage this year. While the IRS does not prefer reconstructed records after the fact, if you can prove you drove to where you said you drove, you can still deduct your mileage. If you maintain a calendar, appointment book, or planner, you can go back through your records and calculate your mileage based on the appointments you attended and the miles you drove. You will only need proof of records if you were to be audited by the IRS, which is a small risk, but still a possibility.

Resources

Category: Business Taxes