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Category: Business Taxes

Small Business Make Before Paying Taxes

How Much Can a Small Business Make Before Paying Taxes?

Starting and running a small business can be a rewarding endeavor, but it also comes with financial responsibilities, including paying taxes. As a small business owner, you might be wondering how much income your business can generate before you’re required to pay taxes. Understanding the tax implications of your business income is essential for financial planning and compliance with tax laws. In this comprehensive guide, we’ll explore the factors that determine how much a small business makes before paying taxes, including income tax, tax brackets, deductions, and more.

The Basics of Small Business Taxation

The Basics of Small Business Taxation

Before delving into the specific income thresholds for small businesses, let’s clarify some fundamental concepts related to small business taxation:

1. Taxable Income vs. Gross Income taxes

Taxable income and gross income are two critical concepts in the realm of income tax, and understanding the distinction between them is fundamental for business owners. Let’s delve into these terms and their significance:

Gross Income:

This is the total revenue generated by your business before any deductions or exemptions are considered. In other words, it’s the sum of all the money your business earns from various sources, such as sales, services, investments, and any other income streams. Total earnings provides a broad overview of your business’s financial inflow but does not reflect the amount of income that is subject to taxation.

Taxable Income:

In contrast, it represents the portion of your total earnings that is subject to taxation after accounting for allowable deductions and exemptions. Deductions are expenses or costs that the tax code permits you to subtract from your total earnings. These can include operating expenses, employee salaries, rent, utilities, and other legitimate business costs. Exemptions, on the other hand, are specific amounts that can be subtracted from your total earnings for each eligible person in your household, reducing your overall taxable income.

For example, if your small business earns $100,000 in total earnings but has $20,000 in deductible business expenses, your taxable income would be $80,000 ($100,000 – $20,000). Income taxes are calculated based on this taxable income, taking into account your applicable personal tax rate and any tax credits for which you qualify.

2. Tax Rates and Filing Status

Tax brackets vary based on your filing status and the amount of taxable income. Business owners often pay personal income taxes on business income, and the tax brackets are determined by the federal and state tax laws.

In the realm of income taxation, your tax liability is significantly impacted by your filing category and the applicable tax brackets. Your chosen filing category, whether it’s single, married filing jointly, married filing separately, or head of household, determines the specific income ranges that correspond to various tax rates. These tax percentages can vary across federal and state tax regulations and may undergo alterations as a result of legislative modifications over time.

It is important for entrepreneurs to acknowledge that they frequently report their business earnings on their personal tax returns. Consequently, the tax brackets they fall into are contingent on their overall taxable income, encompassing both individual and business earnings. By grasping the nuances of their filing category and the associated tax percentages, business proprietors can adeptly strategize their financial affairs, harnessing the benefits of deductions and tax credits to optimize their tax obligations in alignment with tax laws and guidelines. Remaining well-informed about any adjustments in tax rates or brackets is pivotal for precision in tax planning and compliance with tax legislation.

3. Business Structure

The structure of your business plays a pivotal role in determining how your business income is treated for tax purposes. The type of business structure you choose, whether it’s a sole proprietorship, LLC (Limited Liability Company), S corporation, or C corporation, can significantly impact how your business earnings are taxed. Here’s a breakdown of how different business structures can affect your tax obligations:

Sole Proprietorship: In this business structure, the business is not considered a separate legal entity from the owner. Income and losses from the business are typically reported on the owner’s personal tax return (Form 1040). As a sole proprietor, you pay taxes on your business income at your individual tax rate, and you are responsible for self-employment tax, which covers Social Security and Medicare contributions.

LLC (Limited Liability Company): An LLC provides a degree of liability protection for its owners (members) while offering flexibility in taxation. By default, a single-member LLC is taxed similarly to a sole proprietorship, with income reported on the owner’s individual tax return. Multi-member LLCs are generally treated as partnerships for tax purposes, with income and losses allocated to the members.

S Corporation: An S corporation is a pass-through entity that does not pay federal income tax at the corporate level. Instead, income and losses are passed through to the shareholders, who report them on their individual tax returns. Shareholders of an S corporation pay taxes on their share of the business’s income at their respective tax rates.

C Corporation: Shareholders of a C corporation are taxed separately on any dividends they receive, resulting in potential double taxation. However, C corporations may have certain tax advantages and flexibility when it comes to reinvesting profits into the business.

Additionally, the Tax Cuts and Jobs Act introduced the concept of “qualified business income” (QBI) deductions, which can impact the tax liability of certain business owners. This deduction allows eligible taxpayers to deduct a portion of their qualified business income, potentially reducing their taxable income.

4. Tax Credits and Deductions

Tax credits and deductions can reduce your tax obligation. Small business owners may qualify for various tax credits and deductions, such as the Child Tax Credit, business expenses, and self-employment tax deductions.

5. Estimated Tax Payments

Depending on your business’s income, you may be required to make estimated tax payments throughout the year to cover your tax liability. This applies to self-employed individuals and businesses with significant income.

Small Business Taxable Income Thresholds

Small Business Taxable Income Thresholds

The threshold for how much a small business make before paying their tax obligations depends on several factors, including filing classification, deductions, and the specific tax laws applicable to your business. Here are some key considerations:

1. Filing Classification

Your filing classification as a small business owner can influence the amount of income you can earn before meeting tax obligations. Filing statuses include single, married filing jointly, married filing separately, and head of household. Tax rates and income thresholds vary for each status.

2. Tax Rates

Tax rates are determined by your taxable income and filing classification. As of my last knowledge update in September 2021, the federal income tax system in the United States consists of several tax brackets, with progressively higher rates for higher income levels. The tax rates can change over time due to legislative updates, so it’s crucial to consult the latest tax tables from the IRS or a tax professional for current rates.

3. Deductions and Tax Credits

Business expenses and allowable deductions can significantly impact your taxable income. Small business owners can deduct various expenses, such as office rent, utilities, employee salaries, and more. Additionally, tax credits, like the Child Tax Credit or business-related credits, can further reduce your tax obligation.

4. Business Structure

The structure of your small business plays a crucial role in determining how your business income is taxed. For example, sole proprietors report business income on their personal tax returns, while corporations may face corporate income tax rates.

5. Tax Laws and Regulations

Tax laws and regulations are subject to change, and new laws may be enacted. It’s essential to stay updated on any legislative changes that may affect your business’s tax obligation.

Calculating Your Tax Liability

To determine how much your business income or your small business can make before you pay your tax obligations, you’ll need to calculate your taxable income. Here’s a simplified step-by-step process:

Calculate Gross Income: Start by adding up all your business revenue, including sales, services, and any other income sources.

Deduct Business Expenses: Subtract allowable business expenses from your total income. These expenses can include rent, utilities, employee wages, supplies, and more.

Apply Deductions: Consider any deductions for which you qualify. These can include deductions for self-employment tax, retirement contributions, and health insurance premiums.

Check Tax Credits: Determine if you’re eligible for any tax credits, such as the Child Tax Credit or business-related credits.

Consult Tax Tables: Refer to the federal and state tax tables for your filing status to calculate your tax obligation based on your taxable income.

Consider State Taxes: Keep in mind that state income tax laws vary, and your business may be subject to state income taxes in addition to federal taxes. Research your state’s tax laws and rates.

Strategies to Minimize Your Tax Obligations

As a small business owner, there are strategies you can employ to minimize your tax obligations legally and effectively:

1. Take Advantage of Deductions: Maximize allowable business deductions to reduce your taxable income.

2. Explore Tax Credits: Investigate available tax credits that can directly offset your tax bill.

3. Retirement Plans: Consider setting up retirement plans for yourself and your employees, which can offer tax advantages.

4. Hire a Tax Professional: Consult a tax professional or accountant who specializes in small business taxation. They can provide tailored advice and help you navigate your business income and the complex tax landscape.

5. Estimated Tax Payments: If required, make estimated tax payments throughout the year to avoid penalties and manage your tax obligations.

Determining how much a small business can make before paying taxes is a nuanced process that depends on various factors, including income, deductions, tax brackets, and business structure. Small business owners should proactively manage their finances, stay informed about tax laws, and explore tax-saving opportunities to optimize their tax situation.

Consulting with a tax professional or accountant can provide invaluable guidance and ensure compliance with tax regulations. By understanding the intricacies of small business taxation, you can make informed financial decisions and keep your tax obligation in check while focusing on the growth and success of your business.

Strategies to Minimize Your Tax Obligations

If you’re ready to take the next step in managing your small business taxes effectively, consider reaching out to Vyde for personalized tax consulting. Our team of experts is dedicated to helping small business owners like you navigate the complexities of tax laws to maximize your savings and maintain compliance. Don’t let tax concerns distract you from your business goals. Contact Vyde today and let us help you turn tax time into an opportunity for financial optimization and peace of mind.

Frequently Asked Questions:

What is the difference between taxable income and gross income for small businesses?

Taxable income is the portion of your total earnings that is subject to taxation after accounting for allowable deductions and exemptions. Gross income, on the other hand, is the total revenue generated by your business before any deductions or exemptions are considered. It represents the sum of all the money your business earns from various sources, such as sales, services, investments, and other income streams.

How do tax brackets and filing status affect small business owners’ tax liability?

Tax brackets and filing status play a significant role in determining your tax liability. Your chosen filing category, such as single, married filing jointly, married filing separately, or head of household, determines the specific income ranges that correspond to various tax rates. Your tax rates and income thresholds can vary across federal and state tax regulations and may change over time due to legislative modifications.

What impact does the business structure have on small business taxation?

The structure of your business can significantly impact how your business earnings are taxed. Sole proprietorships report business income on the owner’s personal tax return, while corporations may face corporate income tax rates. Different business structures, such as LLCs and S corporations, have their own tax rules and implications for business owners.

What are some common tax credits and deductions that can reduce a small business owner’s tax obligation?

Small business owners may qualify for various tax credits and deductions, such as the Child Tax Credit, business expenses, and self-employment tax deductions. These deductions and credits can help reduce your overall tax liability.

Finding the Right Bookkeeper for Your Business

Are you looking for reliable bookkeeping services for your business? Like many business owners, you may not know where to start. When you are passionate about your business but the numbers are overwhelming and challenging for you, competent and professional bookkeeping services can easily take care of the dollars and cents on your behalf. If you would like to be truly profitable and successful, you have to keep tabs on your business finances.

As a small business owner, if you do not know where you stand on a monthly, quarterly, or annual basis, your chances of surviving and growing can decrease considerably. There is no doubt that a bookkeeper can help manage your finances, provide valuable insight, and can have a big impact on the trajectory of your small business.

Here are five things you should consider when hiring the right bookkeeper for your business.

1. The Right Experience and Expertise

When you start researching potential bookkeepers or bookkeeping companies, find out about their experience level. It is no secret that every industry has its unique quirks when it comes to financial record-keeping. Check to see if the company or candidate has experience and confidence that they can navigate the ins and outs of your industry.

In addition, make sure you have the right experience for the right role. Instead of having one person try to tackle all your finances, look for a team of specialized individuals who work well together. Having someone who specializes in bookkeeping focus on your books and an accountant who specializes in tax do your taxes can improve accuracy and save you money.

While a company website will certainly offer some valuable insights into their experience, you should ask a few important questions. Some of them are:

  • How long has the candidate or company been in the bookkeeping industry?
  • What type of clients do they serve?
  • Do their services meet your business needs?

Accounting and bookkeeping is not an easy science. So, for a business that is starting out or growing, you need to have somebody who has been successfully doing this job for quite some time.

2. Communication is Key

If you are not good with numbers, you need a professional who will help you understand and appreciate the numbers. So, it is important to make sure that your communication style and the communication style of your bookkeeper work well together.

Some bookkeepers or bookkeeping companies charge extra for financial reviews or consultations. Ask about potential additional costs and be sure to factor those into your budget. It’s good practice to meet with your bookkeeper or accountant at least once per quarter to get a better gauge on your business finances.

Your bookkeeper needs to present your business finances in a simple way that makes sense and also keeps you informed at both the frequency and level that you prefer.

3. They Must Have Attention to the Detail

Numbers can be challenging and tricky to deal with. Keep in mind that even a small error or mistake in figures could impact your company. Look for a bookkeeping company or individual that has a thorough review process so you can have confidence your reports are accurate. A bookkeeper’s ability to give attention to the smallest details can ensure that mistakes or errors are minimized.

4. Look for Transparency and Trustworthiness

When it comes to bookkeeping, transparency must be among the first things that you should look for in a candidate. The bookkeeper you choose should be able to give you an instant and reliable quote for their services without any hidden fees that may pop up after several months of working together. There is no doubt that this is the type of transparency and honesty that you need in the bookkeeper who will be handling your business finances.

Also, note that any bookkeeping professional that you hire should be a reliable and trustworthy candidate. You will entrust this professional with confidential and sensitive financial details of your business. Choosing an individual or company that you could rely on and trust would give you peace of mind.

5. Up to Date on Tech

The financial industry is continually evolving, and while the principles of bookkeeping and accounting might not change, there are ways your bookkeeper can make your financial data more accessible and digestible than ever before. Look for a bookkeeper who is open to adopting innovations and can keep up with changing technology to provide you with the best experience.

The right bookkeeper for your business should be adept at using standard bookkeeping software and tools, and they should also have an innovative mindset to help you have better insight and make informed business decisions.

There is no doubt that hiring a bookkeeping professional or company can be an important decision for your business. An excellent bookkeeping partner will be with you and help you every step of the way as your company grows.

How to Catch Up on Bookkeeping in 6 Simple Steps

Small businesses owners have many tasks to juggle just to be able operate their business efficiently. These tasks can include: daily operations, marketing, sales, products, processes, management and more. Those tasks can quickly become overwhelming for small business owners. While many day-to-day activities of owning a small business differ based on industry, bookkeeping does not.

Every business involves bookkeeping. Delayed or inaccurate bookkeeping can swiftly become a financial disaster for any business. How can you grow your business, secure capital, or even file taxes correctly without accurate and up-to-date books?

Suddenly, your finances are a mess. You’re wondering how you got here and how to catch up on bookkeeping fast. Sound familiar? Investing in bookkeeping services like Vyde streamlines your bookkeeping processes and helps you grow your business. You can also take steps now to start climbing out of the financial mess into which you’ve somehow fallen. 

Bookkeeping services aside, if you’re eager to learn how to catch up on bookkeeping alone, you can follow these six simple steps to get the ball rolling.

 

1. Gather Your Receipts

If your receipts are scattered all over, it’s time to call them in. You’ll need to gather all of the receipts, invoices, and other financial documents related to your business, including records like:

  • Bank statements
  • Credit card statements
  • Business expenditures
  • Business revenue
  • Customer accounts
  • Bad debt expenses
  • Vendor accounts
  • Receipts for non-deductible items
  • Deposits / ATM slips
  • Reconciled bank statements

Additionally, if you have customers who are overdue on their payments, we recommend sending out pending invoices to those customers to avoid potential bad debt expenses.

 

2. Reconcile Bank Accounts

Next, it’s time to double-check your records. Take time to sit down with your credit card and bank statements. These statements should always match your business records, vendor accounts, and customer accounts. 

If you find a discrepancy or if they don’t add up, locate the error before moving on to step three. Unfortunately, discrepancies and human error are common problems for business owners who aren’t using a team of experts. 

 

3. Separate Personal and Business Expenses

An essential step to knowing how to catch up on bookkeeping is to take measures to prevent your books from becoming messier in the future. If you already separate your personal and business expenses, great. You can move on to step four. If not, you’ll need to separate those expenses to keep your books up to date. 

We always recommend keeping personal and business accounts separate, including bank accounts, credit cards, and other finances. Accounts that are tangled together create unnecessary stress when doing your bookkeeping or filing your taxes. Additionally, you could potentially be held personally liable for any loans for your business. 

If you’re unsure what purchases or expenses qualify as a business expense, review what items the IRS considers to be in that category. 

4. Go Paperless 

Going paperless will make your life easier whenever it’s time to update your books. Now’s a good time to start because you’ve already gathered your documents and receipts. Create digital records of all these financial documents independently or by using online tools, software, or a Vyde account.

5. Collect Tax Documents 

Tax season is an important time of the year for all American workers, but most businesses need to file additional forms for the tax year.

Did you pay an employee or independent contractor this year? You’ll likely need to file at least one of the following forms:

Employees: W-2 Forms

You must file a W-2 for all your employees for the tax season.

Independent Contractors: Form 1099-MISC and W-9

You’ll only need to file additional forms for independent contractors that you paid more than $600 during the tax year.

Your independent contractors must complete a W-9 form and return it to you. This form contains their taxpayer information, which you’ll use on the 1099-MISC form. The 1099-MISC form is required to track your payments to independent contractors and ensures they receive their tax documents. Get your tax documents in order, including what you’ll need for the above forms. Then, once your bookkeeping is up to date, keep it updated.

6. Have Everything Reviewed by a Tax Professional 

Now that you know how to catch up on bookkeeping, we strongly recommend using a tax professional. A tax professional removes much of the stress of tax season and can verify your financial information related to your return.

Additionally, using a tax professional will ensure that your business receives the tax deductions to which you’re entitled. Most tax professionals provide guarantees in the event of an audit and will represent you, speaking to the IRS on your behalf.

Catch Up on Your Bookkeeping With Vyde 

As a business owner, you have plenty of obligations outside of bookkeeping, and you’re likely not an expert. You wouldn’t handle your legal work, so why go at bookkeeping alone?

Vyde provides flexible business solutions that fit your needs and budget. We make bookkeeping for small businesses simple so you can focus on what you do best. The peace of mind about bookkeeping and taxes that we provide help you save time, stress, and money along the way. Contact us to start on your path to getting caught up on your business’s bookkeeping today!

Financial Records

How Long to Keep Financial Records

Have you ever wondered how long to keep financial records such as receipts, bank statements, and credit card bills? You’re not alone! Rather than keep everything forever and let the stacks of paper reach the ceiling, develop an organized system of keeping receipts for the recommended amount of time.

Remember, the IRS recommends keeping tax-related documents for at least six years. An audit can be performed up to six years after filing if an error is suspected, and you’ll want proof of your purchases if that happens.

How Long to Keep Financial Records and Why

Determining how long to keep financial records depends on several factors, including the record type and whether it’s for personal or business documentation. Whether you’re keeping the record for one month or 10 years, record-keeping best practices dictate you should store documents electronically (go paperless when you can), and always backup your files by saving them in the cloud. At Vyde, our accounting experts help our clients save and organize important financial information in a secure online portal so the information never gets lost and is easily accessible.


Below is a detailed summary of how long to keep financial records, categorized from the least amount of time to the most.

KeepItFor-01

1 Month

The key to successful record retention is staying organized. Set up an efficient monthly system and you’ll be more likely to stick with it. For instance, write the type of expense on each receipt and put it in a dedicated file each month. You’ll want to keep utility payment receipts, bank withdrawals, and deposit slips until you receive your monthly statements. After you’ve had time to review your statements, you can dispose of the receipts.  

Keep the following documents for one month:

  • Receipts for non-deductible items
  • Deposits / ATM slips
  • Reconciled bank statements

1-3 Years

You will need proof of payments and any business financial activity in case of disputes, identity theft, or fraud. Therefore, create a file for all banking and investment records for both your personal and business accounts. 

Keep the following documents for one to three years:

  • Paystubs
  • Bank records
  • Insurance policies
  • Investment statements
  • Mortgage statements
  • Receipts for charitable contributors
  • All business-related documents

7+ Years

You might be wondering how long to keep bank statements. Err on the side of caution. This will be helpful if you claim a loss or a bad debt deduction. 

Keep the following documents for seven or more years:

  • Income tax returns (federal and state)
  • W-2s and 1099s
  • Medical bills
  • Contracts
  • Receipts for tax-deductible items
  • Mileage records
  • Canceled checks
  • Real estate tax forms
  • Credit cards statements that contain purchases used as tax deductions
  • Retirement plan contributions

Forever

Why should you keep some items permanently? Some documentation has no expiration date, such as birth certificates and social security cards. Plus, these documents can serve as proof of identity. For paperwork like auto titles, or other purchases, store the related documents for as long as you own those items. 

Keep the following documents permanently:

  • Birth certificates
  • Social security cards
  • Passports
  • Education records
  • Auto titles
  • Investment statements
  • Home improvement receipts*
  • Receipts from major purchases*
  • Wills
  • Current insurance policies
  • Medical records
  • Pension / retirement contracts
  • Property agreements
  • IRA contribution records
  • Mortgage documents
  • Life insurance policies
  • Safe deposit box inventory

*for insurance purposes

Where to Store Your Financial Records

Where to Store Your Financial Records for Safekeeping

Keep vital personal documents, like birth certificates, passports, marriage certificates, etc., in a secure place, such as a home safe, fire-safe container, or a bank’s safe deposit box. 

Documents such as tax returns, receipts, bank statements, or pay stubs can also be kept in a safe deposit box or simply a locked file at home. For electronic documents, store them in a password-protected folder on your desktop or another secure location.

At Vyde, we help our clients save and organize important financial information in our secure online accounting portal. We not only complete your bookkeeping and taxes, but we also provide easy access to tax returns and other important business documents.

Why You Should Shred Discarded Documents

You may be tempted to toss old financial records in the trash. But if any of those documents contain sensitive personal information, like your account or social security numbers, you’ll want to shred them first. This reduces the risk of identity theft. 

Shred any document that contains:

  • Social Security numbers
  • Account numbers
  • Personal signatures
  • Birthdates
  • Phone numbers
  • Email addresses
  • Confidential information (medical, financial, or legal)

The Benefits of Record Keeping

Knowing how long to keep financial records is important because it can help you stay organized. This is crucial if you’re a business owner, as you’ll want to have everything readily available should you be audited or need to go to court. Organizing your records can also help you prepare accurate financial statements and tax returns, stay compliant, access important reports, apply for loans, and plan for the future. 

Vyde Can Help!

Need help organizing your business financial records? At Vyde, we can help with your business accounting and taxes. We’ll handle your books throughout the year so we can keep you organized and maximize your tax savings, all for a minimal monthly fee. Contact us today!

1. How long should I keep financial records for utility payments and bank transactions?

Maintain utility payment receipts, bank withdrawals, and deposit slips for at least one month. Review your monthly statements and dispose of these receipts afterward.

2. What financial records should I retain for one to three years?

Preserve documents like paystubs, bank records, insurance policies, investment and mortgage statements, receipts for charitable contributions, and all business-related documents for one to three years.

3. Which documents should I retain for seven or more years?

Keep income tax returns, W-2s, 1099s, medical bills, contracts, receipts for tax-deductible items, mileage records, canceled checks, real estate tax forms, and credit card statements used for tax deductions for seven or more years.

4. What documents should I keep permanently?

Essential documents like birth certificates, social security cards, passports, education and medical records, auto titles, investment statements, wills, insurance policies, property agreements, and certain receipts should be kept permanently.

5. Where should I store financial records for safekeeping?

Keep vital personal documents in a secure place at home or in a bank’s safe deposit box. For electronic documents, store them in a password-protected folder or secure location. Vyde offers a secure online portal for organizing and storing financial information.

Advertising Expenses

Top 20 Common Advertising Expenses Examples for Small Business Owners

Top 20 Common Advertising Expenses Examples for Small Business Owners

You’re probably spending a fair amount of money on advertising your small business to potential clients and customers. Did you know most of your marketing and advertising can be written off as a tax deduction to lower your tax bill? Whether you’ve got a whole marketing team running the show or you just purchased your first  ad, most money spent on promoting your small business is tax deductible.

According to the IRS, the criteria that your advertising expense must meet to qualify as a deduction is that it is ordinary (i.e. common and accepted in your industry) or necessary (i.e. helpful and appropriate for your business). Marketing and advertising are both essential to growing and promoting your business, which makes them ordinary and necessary.

Just because the IRS terms an advertising expense as “ordinary” doesn’t mean you can’t be creative when it comes to ways you advertise. As long as the purpose is to bring in new customers and keep existing ones, you should be covered. Just be sure you know and document the business purpose.

The few exceptions include expenses that are used primarily for personal use or gain, not business promotion. In addition, though donating products or money to a community event or charity are tax deductible, donating services or time are not. Again, be sure to know and be able to show how the expense benefits your business. When in doubt about a specific advertising expense and if it’s tax deductible, ask your accountant.

20 Common Tax-Deductible Advertising Expenses for Small Businesses

Here’s a list of the top 20 most common advertising expenses for small business owners to keep in mind come tax season. All of these are tax-deductible:

  1. Website set-up, design, and maintenance
  2. Pay-per-click ads and online advertisements (Google, Facebook, LinkedIn, YouTube, etc.)
  3. Social media promotions
  4. Promotional materials with your logo such as t-shirts, mugs, pens, notepads and more
  5. Graphic design fees: logos, business cards, brochures, signs, printed or online advertisements, flyers, or other promotional materials designed professionally
  6. Printing of promotional materials: business cards, flyers, postcards, brochures, and coupons
  7. Storefront signs
  8. Vehicle signs or vinyl decals for windows
  9. Giveaways and promotions
  10. Radio advertisements
  11. Magazine or newspaper advertisements
  12. Television commercials
  13. Balloons, decorations, refreshments, and any other expenses incurred for parties or open houses promoting your business
  14. SEO services
  15. Packaging, design, and materials for your products

Tax-Deductible Goodwill Advertising Expenses

Tax-Deductible Goodwill Advertising Expenses

The following are considered goodwill advertising expenses and are tax deductible as well. Goodwill advertising is any type of promotion that keeps your small business in the public eye.

16. Sponsoring a youth sports team in your community such as little league baseball or soccer

17. Money donated to a school, charity, or local cause

18. Participating in a parade to promote your business, such as handing out flyers, candy, frisbees, pens, or shirts

19. Giving away products or samples

20. Advertisements encouraging people to donate to a certain charity, like the Red Cross

Are you feeling overwhelmed by tax and bookkeeping tasks for your small business? Don’t let the stress get to you. Reach out to the tax experts at Vyde today. Vyde handles the paperwork so you can focus on what matters most—growing your business. Your own accounting department, all rolled into one. Don’t hesitate, contact Vyde now!

 

FAQs about Tax-Deductible Advertising Expenses for Small Businesses:

What qualifies as tax-deductible advertising expenses for my small business?

Advertising expenses must be ordinary and necessary for your industry. This includes various marketing efforts aimed at promoting your business.

Can I get creative with my advertising strategies and still claim them as deductions?

Yes, as long as your creative strategies aim to attract new customers or retain existing ones, they can be tax deductible. Ensure you document their business purpose.

Are there any exceptions to tax-deductible advertising expenses?

Expenses primarily for personal use or unrelated to business promotion aren’t deductible. Donating services or time is also non-deductible.

How can I determine if a specific advertising expense is tax deductible?

Consult with your accountant if uncertain about the deductibility of a particular expense. Ensure you can demonstrate how it benefits your business.

What are some examples of goodwill advertising expenses that are tax deductible?

Examples include sponsoring local sports teams, donating to schools or charities, participating in community events, giving away products or samples, and promoting charity donations.

Interested in Learning More?

Schedule a free consultation with our team!

Tax Extension

I’ve Filed a Tax Extension. What Now?

Tax day has come and gone and you didn’t have time to file your taxes. As long as you filed a tax extension, you have an extra six months to get your tax return to the Internal Revenue Service (IRS).

The IRS will allow you to file an extension for any reason, as long as you file form 4868 by the original tax deadline or they will automatically grant you an extension if you have paid your taxes by the original deadline.

But what happens after you’ve filed a tax extension? We’ll help guide you through the process.

IRS will allow you to file an extension

Check the status of your extension.

The first thing you need to do after you’ve filed a tax extension is make sure that it is approved. Although the IRS is good about granting tax extensions, you’ll want to double-check that yours has been approved. If you used an accountant to file your taxes, check back with them to see if it’s been approved. If you used a tax preparation service, you can check there to see your approval. Finally, if you mailed your extension form in, you’ll have to call the IRS customer service line to follow up on it.

Once you’ve verified that your tax extension was approved, you have six months to finish your taxes and submit them.

If your tax extension was rejected, it is most likely due to a clerical error. You may have misspelled something, or your last name doesn’t match the IRS’s records. If this is the case, you have 5 days to correct it and resubmit it.

Pay any taxes due.

Filing a tax extension does not extend the deadline for paying your taxes. If you owe any taxes, you need to pay them as soon as possible.

The IRS charges interest for any taxes not paid by the original due date.  After that date, unpaid taxes are charged a .5% interest rate for every month, or partial month, that the balance is not paid. The maximum penalty is 25% interest.

If you can prove that you had a reasonable cause for not paying your taxes by the deadline, then the IRS might waive the interest fees.

File your tax return.

The final step with a tax extension is to file your taxes. The IRS allows you to file a tax return up to 6 months past the original filing date. You can file your return any time before that date as well.

If you fail to file your tax return by the extended date, you can face more penalties. The IRS charges a 5% penalty for any month, or partial month, that your tax return is late. Again, the maximum penalty is 25%. You can avoid the penalty if you have a reasonable explanation as to why your return was late. The IRS suggests you attach your reasoning to your tax return in order for it to be considered.

If you have questions about your extension or business tax return, reach out to our team at Vyde. We would love to help answer your questions!

File your tax return

FAQs for Filing a Tax Extension

1. How do I confirm if my tax extension has been approved? After filing, verify approval status. Contact your tax preparer, service, or IRS customer service if you submitted it by mail to ensure it was accepted.

2. What should I do if my tax extension is rejected? A rejection could be due to errors. Correct any inaccuracies within 5 days, such as misspelling or discrepancies in personal data, and resubmit.

3. Is paying taxes postponed by filing an extension? No, the tax extension only extends the filing deadline, not the payment. Clear any owed taxes by the original due date to avoid interest charges.

4. When should I file my tax return after getting an extension? Utilize the granted six-month extension period to file your taxes. Submit your return within this timeframe to avoid late-filing penalties.

5. What penalties might I face if I fail to file by the extended deadline? Late filing incurs a 5% penalty per month on the unpaid tax amount. Attach a reasonable explanation if your return is late to avoid this penalty.

Financial Reports

What Your Financial Reports Really Tell You

 

Financial reports can be an incredibly helpful tool for small businesses. They can help you determine how much money you can pay yourself each month. Or they can help you decide if it’s time to expand your business. As helpful as financial reports are, they can only help you if you understand how to read them.

Luckily, Ben Sutton, Vyde’s co-founder and CPA, took the time to explain how an income statement and balance sheet work. It’s not the same as getting a 5-year accounting degree, but it’s going to give you the knowledge to make smart business decisions. Watch the video below for a great in-depth example of how financial reports work or keep reading to learn more.

Financial Reports Start with a Bank Statement

One of the things we ask our clients to send us each month is his or her business’ bank statement. This is so that we can begin to build your profit and loss, or income statement, and balance sheet. We’ll go through the bank statement to look for expenses and income. Expenses can come from a variety of places such as:

  • Marketing costs
  • Supplies
  • Food & entertainment
  • Business equipment
  • Auto expenses
  • Loan payments
  • Owner distributions

Income is simply what money your business generates. Customer payments are the most common form of income.

Keep in mind that as we move on these expenses will be split between the profit and loss statement and balance sheet. This is where the accounting rules come in. An accountant can determine what pieces of information belong on a profit and loss statement and what belongs on a balance sheet.

What Does My Profit & Loss Statement Tell Me?

A profit and loss statement (P&L) shows the revenues, costs, and expenses for a certain time period. We like to provide our clients with a monthly or quarterly P&L statement.

The P&L is only going to show the exact income and expenses that your business had that month. Accounting rules tell us which expenses belong on the P&L and what belongs on the balance sheet.

First, you will count any income your business had. Customer payments, as we said before, count as income. One confusing point would be any loans that you have taken out during the month. It may seem like income because money is coming into your account, but it isn’t. A loan is a liability and doesn’t belong on a P&L

Before we move on to regular expenses, we’ll want to look for the cost of goods sold. Cost of goods sold is what you spend on items that are required to produce your business’ services or products. This isn’t a required section on a P&L, but it’s useful for management to see what they’re spending directly on their services.

Next, are the monthly business expenses. Expenses are any other purchases that you make for your business. These include food, entertainment costs, auto expenses, and marketing costs. Some of the other expenses we listed in the first section aren’t part of the P&L. For example, business equipment and owner’s distributions aren’t part of the P&L. They are part of the balance sheet.

Once you have determined the income, the cost of goods sold, and the expenses, you total that to determine if you have a net loss or a net gain for the month. The P&L isn’t going to tell you how much money you have left in the bank. It’s simply telling you if you spent more than you brought in that month.

What Can I Learn From a Balance Sheet?

A balance sheet gives a company a quick glimpse at its assets, liabilities, and equity. The balance sheet will be broken down into those three categories: assets, liabilities, and equity.

The assets section starts with how much cash your business has on hand. Then you list your physical assets. If you bought equipment for your business during the month, like a computer or other purchases generally over $2,500, they go in the fixed assets category. To determine your total assets, you add your cash with your fixed assets.

Next, we’re going to go through our liabilities. Liabilities refer to money that we owe and include business loans, credit cards, auto loans, and more. After we’ve determined your business’ liabilities, we can move onto equity.

Equity is usually the most complicated part of the balance sheet. In the equity section, you’ll enter your owner’s distribution, or what you paid yourself that month. You’ll also see your retained earnings. The retained earnings are calculated by either adding the month’s net income or subtracting the month’s net losses from the last month’s total retained earnings.

Finally, you’ll add your liabilities and equity together. If you’ve done everything correctly, it should add to the same amount as your assets. That’s why it’s called a balance sheet. Because your assets should always equal your liability and equity.

Why Do I Need to Understand My Financial Reports?

Before we address the conclusions you can draw from your financial reports, we want you to understand how the P&L differs from the balance sheets. The P&L shows a period of time. Whereas, the balance sheet shows a point in time. So, the P&L can show you what you made, or lost, in your business in one month, and the balance sheet shows you overall where your business is at the end of the month.

Lesson 1: Don’t Manage Your Business Off of the Cash Balance. Manage it Off of the P&L.  

Without looking at both the P&L and the balance sheet, you can’t make smart business decisions. If you just look at the balance sheet, you may see that your business still has money, so you may try to pay yourself more, or make a big purchase. However, if you see that your P&L shows a net loss for the month, you might hold off on those decisions. The two go hand in hand when it comes to making a decision. You have to look at both to get an idea of where your business is truly at.

Lesson 2: Don’t Estimate Your Tax Liability on Your Owner’s Distribution  

Your financial reports are also going to give you an idea of what you owe in taxes. The biggest misconception small business owners have is that they are taxed on whatever money they pull out of the business, the owner’s distribution we’ve talked about. However, this isn’t true. The Internal Revenue Service (IRS) actually taxes you on your business’ net income. The IRS isn’t going to tax you unless you’ve made a profit on your business. In order to determine your net income, you’ll want to look at those income statements (the P&L) and determine if you had a net profit or loss. Once you know that, you can determine your tax liability.

I know the process can seem overwhelming at times, but analyzing both your P&L and balance sheet regularly can help you better manage and grow your business. If you are struggling to stay on top of your accounting and finances, reach out to our team at Vyde to see how we can help!

 
Quarterly Estimated Taxes

What You Need to Know About Quarterly Estimated Taxes

If you are self-employed or a contract worker and you are generating a profit, you may need to pay estimated quarterly taxes. This is the Internal Revenue Service’s (IRS) way of collecting taxes from people who don’t have them withheld from their paychecks through payroll.

Our guide on estimated quarterly taxes will help you understand who needs to pay them, how to calculate them, and how to pay your quarterly taxes.

If you have questions about estimated quarterly taxes or need help calculating how much you should pay, our team would love to help! Our clients can easily schedule a time to meet with us to discuss your unique situation.

Who Needs to Pay Estimated Quarterly Taxes

Most people pay their taxes throughout the year by having them withheld from their paychecks. When you are self-employed, however, you pay estimated quarterly taxes to cover those taxes.

Self-employed individuals, including contract workers, sole proprietors, LLC owners, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe $1,000 or more in taxes when their return is filed.

This means if your new business is not yet making a profit, you do not need to make estimated quarterly tax payments.

There are cases when you may have to pay estimated quarterly taxes even if you are employed and your employer is taking your taxes out for you. If you receive income from the following categories you may have to pay estimated quarterly taxes.

  • Interest
  • Dividends
  • Alimony
  • Capital Gains
  • Prizes or awards

Calculating Estimated Taxes

Quarterly estimated tax payments are based on estimations of what a business owner believes they will make in a quarter. Taxpayers estimate their income and their deductions in order to calculate the estimated quarterly taxes.

The IRS suggests using your previous year’s income and deductions to help calculate this year’s estimated taxes. They also provide an IRS’ Estimated Tax Worksheet on form 1040-ES to help you calculate your taxes.

The important thing to remember with quarterly estimated taxes is that they are estimates. If you over or under-estimate your taxes, you can file another form with the IRS to fix those taxes. If you make more or less income than you anticipated, you can also refigure your estimates for the next quarter so that you aren’t always over or under-estimating your taxes. Make sure you’re doing your best to make accurate estimates so you can avoid potential penalties.

Estimated Quarterly Tax Deadlines

For 2023, the Estimated Quarterly Tax due dates are:

  • 1st Quarter – April 18, 2023
  • 2nd Quarter – June 15, 2023
  • 3rd quarter – September 15, 2023
  • 4th Quarter – January 16, 2024

Be sure to save these dates in your calendar and set reminders so you don’t miss the deadlines. 

How to Submit Your Taxes

You can submit your taxes online through the IRS’ secure server. You’ll have multiple options to make your payments, including credit or debit card, cash, PayPal, money wire, and more. You can also access options to schedule future payments through the Electronic Federal Tax Payment System (EFTPS).

 

Estimated Quarterly Tax Penalties

If you do not make estimated quarterly tax payments or do not pay enough tax throughout the year, you may have to pay a penalty. Generally, if you owe less than $1,000 in tax or if you paid at least 90% of the tax for the current year, you can avoid any penalties. Again, quarterly estimated taxes are just that: estimates. Do your best and make adjustments as you go to avoid additional costs.

How Vyde Can Help

If you have questions about estimated quarterly taxes or need help calculating how much you should pay, our team at Vyde would love to help! Our clients can easily schedule a time to meet with an accountant and tax professional to discuss your unique situation. Simply reach out to our team through the Vyde Dash. We look forward to hearing from you!

21 Tax Benefits of Owning a Small Business

21 Tax Benefits of Owning a Small Business

21 Tax Benefits of Owning a Small Business

Many obvious perks come with owning your own business, including setting your own schedule, being your own boss, and having control over your career. But there are also many tax benefits business owners that can take advantage of to maximize their profits.
Here's a quick guide that covers important tax deductions for your business.

What Will a Deduction Save Me?

A deduction, or write-off, is a business expense that can help lower your taxes. For example, if your business made $75,000 last year but you invested $10,000 in new business equipment, you would deduct that $10,000 from your net income. That means when it comes time to pay your taxes, you would need to pay tax on only $65,000 instead of the full $75,000.

How much will that deduction actually save you on your taxes? It’s important to weigh out the costs versus tax savings when you’re making a business purchase. Sometimes the tax benefits of owning a business don’t outweigh the expenses involved with a deduction. Luckily, we have a simple formula that can help you see the value of these deductions:

Business Expense x Tax Rate = Money You Save on Taxes

For example, if you spent $2,000 on a new camera for your business and your tax rate is 25%, your savings would be $500:

$2,000 X .25 = $500

If you don’t know your tax rate, you can always visit IRS.gov to see the latest tax rates and brackets for the year. Keep in mind that if you are self-employed, you will also need to pay self-employment tax, which is a little over 15%.

Of course, you can’t write off every expense as a business expense. According to the IRS, you should write off expenses that are ordinary (i.e. common and accepted in your industry) or necessary (i.e. helpful and appropriate for your business). That doesn’t mean you can’t be creative regarding a tax deduction. Think broad. Just be sure you know and document the business purpose.

Common Business Expenses That Qualify For Tax Deductions

A great example of getting creative in maximizing your tax benefits for owning a business comes from a client I work with who wrote off her houseboat at Lake Powell. She is a photographer who takes senior graduation photos, and she also loves Lake Powell.

She came up with a promotional idea of taking a handful of her clients down to Lake Powell each year for an exclusive photo shoot. Because of these promotional trips, she decided to purchase a houseboat as a business expense. While she can still enjoy the houseboat throughout the year with her friends and family, the reason for purchasing the boat was to grow her business, which makes it a business expense. The chance to win a vacation to Lake Powell and the stunning photos that result from these trips help build her client base and generate more revenue. Overall, it’s a win-win!

This example illustrates that business owners should not feel limited in the deductions they take. Below, I have listed several common business expenses you should consider as tax deductions, but this is by no means a comprehensive list.

  1. Business Travel

  2. Business Meals

    • These include meals where you discuss business or meet with clients, partners, prospects, etc.

  3. Retirement Contributions

    • Business owners have more flexibility that allows them to strategize around their retirement contributions. At the end of the year, you can determine how much you want to contribute to your retirement to help lower your taxable income. If you have questions, reach out to our team to develop with the best game plan.

  4. Vehicles and Transportation

    • This can include purchases, leases, mileage, repairs, maintenance, insurance, etc. As we saw from the example above, it can even include houseboats!

  5. Phones

    • This can include the initial purchase, repairs, and monthly phone bills.

  6. Equipment

    • Some examples include tools, furniture, cameras, computers, monitors, printers, and machinery. Again, this can be broad depending on your business needs, so don’t limit yourself.

  7. Depreciation on Assets

    Depreciation on any capital under your name is fully deductible. Equipment, rentals, vehicles, and other depreciable items of contention are covered under a Section 179 deduction—up to $1,050,000 from new.

  8. Inventory

    One of the tax benefits of owning a business is that everything in your warehouse can be written off at the end of the year. This will be valid whether you’re producing these goods yourself or serving as a middleman.

  9. Supplies

    • Do you need office supplies or marketing materials like brochures, business cards, or posters? What about cleaning supplies or hardware like memory drives, routers, or servers? Keep track of all these expenses because they are all great tax deductions.

  10. Employee Expenses or Contract Labor

    • Whether you have employees or pay someone to help set up your office or website, you can count those payments as a deduction. In addition, any money you spend on business equipment, education, travel, meals, gifts, etc. for employees can be written off.

  11. Insurance

    • This includes health insurance as well as business-related insurance expenses, such as data breach insurance, liability insurance, property insurance, etc.

  12. Financing

    • If you finance expensive equipment, vehicles, or more for your business, you can write off the full purchase price of the asset using bonus depreciation in the year you financed it, even though it might take you years to pay off

  13. Website and Software

    • Are you paying to maintain your website or domain? Do you use editing software, subscriptions, or Microsoft products for your business? Make sure you write those expenses off!

  14. Education

    • Say there’s a seminar, class, or workshop that could help you gain important skills for your business. Take advantage of the learning opportunity and then take advantage of the tax deductions by writing off the expenses related to that education. That includes books, travel to and from seminars, meals purchased while attending a workshop, etc.

  15. Taxes

    • Since you are self-employed, you will need to pay self-employment tax, which covers Medicare and Social Security taxes and is roughly 15%. While there’s nothing fun about paying extra taxes, you can deduct half of the self-employment tax to lower your tax bill.

  16. Marketing and Advertising

    • This is another great area for thinking outside the box. You’ll likely have expenses related to ads, signs, logos, brochures, etc. but you could also sponsor community events, host a client retreat, or hold a promotional treasure hunt to build up your business.

  17. Home Office or Rent

    • Whether you rent an office space or work from home, you can take advantage of tax deductions. With rent, it’s easy to calculate your business expense because you have a monthly bill. For a home office, that can get a little trickier. Check out our guide for getting the most from your home office tax deduction.

  18. Utility Costs

    One of the significant tax benefits of owning a business: Every single one of the utilities required to keep you in operation is totally tax-deductible. The only limitation? Double services—if you have a dedicated phone line for your business on-site, you can’t also claim this same deduction for your home line.

  19. Interest

    Any interest accrued on a small business loan, credit cards, or other borrowed money your business depends on can also be written off. As long as you, the owner, are legally liable for the debt, you should be good to go, making this one of the best tax benefits of owning a business.

  20. Internet, Phone, and Other Bills

    • Water, heat, air conditioning, internet, phone, hotspots, monthly subscriptions for marketing tools or video conferencing—these could all be important for your business to function. Don’t forget to add those as tax write-offs.

  21. Professional Fees

    • Do you have to maintain a license for your job? Or do you need permits to operate? Those are additional tax deductions you’ll want to take advantage of.

owning a business

More Questions About Tax Benefits of Owning a Business?

Have additional questions about how to write off your business expenses and the tax benefits of owning a business? Reach out to our team for advice. At Vyde, we help small businesses save time, money, and stress by staying on top of their taxes and finances. We’d love to help you in any way we can.

Interested in Learning More?

Schedule a free consultation with our team!

Halloween Candy

5 Ways to Make Halloween Candy Tax-Deductible

Did you know you can deduct Halloween candy from your taxes? As a business, you can use Halloween candy as a tax write-off if you figure out a way to make it business-related.

Here are five ways on how to make Halloween candy tax-deductible this October:

  1. Make a promotion out of it. Attach your business card or a promotional flyer to packets of M&M’s and voila! Deductible.
  2. There are many companies that will print candy wrappers with your logo on it. This is a more advanced way to promote your business and still have something for trick-or-treaters.
  3. Send a box of candy to potential or existing clients this October. These gifts help promote your business and build relationships that can boost your sales. It might also be a nice, unexpected (and early!) surprise for clients who might be expecting a Christmas card rather than a Halloween treat.
  4. Donate any leftover candy to the US troops. Read more about that, here. “Charitable organizations with 501(3)c status like Operation Gratitude (EIN 20-0103575) and Soldiers’ Angels (EIN 20-0583415) collect leftover Halloween candy to include in care packages for soldiers. They are two of many 501(c)3 organizations on the IRS-approved list to donate tax-deductible charitable goods. Always be sure to check the IRS list before claiming your donations are tax-deductible, as status can change.”
  5. Make it a party. You can deduct a portion of a Halloween party if the party is to conduct or promote business. Typically, this looks like an open house of some sort where you mingle with current and potential clients, play a few Halloween games, give out candy and treats, and discuss business. The IRS does not specify how much time you must spend discussing the business to claim a deduction, so party on!

 

The candy you purchase to stand at your front door and hand out to neighborhood kids is likely not tax-deductible. But hey, those little smiling monsters on your doorstep are worth the money, aren’t they

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Vyde is a licensed accounting firm (CPA) based in Provo, Utah, and members of the AICPA. We provide professional accounting services to businesses and individuals, with a focus on small business bookkeeping and taxes.

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