Moving to a new country comes with plenty of excitement, and when you enter your new homeland with a lucrative business model in place, you can comfortably tackle your new life with esteemed confidence. There are, however, plenty of regulations and stipulations to be aware of upon entering US soil.
Tackling your first tax season not only as an individual citizen but as a business entity can be a tricky trail to navigate. From understanding tax preparer fees from a refund to nailing all of your eligible deductions, there is plenty to scratch your head over. We’ll help you prepare for the approaching tax season with these 5 helpful tips.
Tip #1: Understand the difference between paying and filing taxes
Despite the common misuse of each term, filing and paying taxes are two separate acts.
- Filing taxes is the simple act of filling out the correct forms and sending them, either by mail or digitally, by the deadline date.
- Paying taxes requires a successful transaction that finalizes one’s tax bill by the required due date. This date does not always coincide with the required filing date of the return itself.
It is important to note that the penalty for failure to file is far more severe than the penalty for failure to pay. As a small business, it is imperative that you stay on top of your tax duties to keep yourself in the green and far out of the IRS wrath’s reach.
Tip #2: Know which taxes are required
There are several elements that determine what taxes are required of your business. Generally speaking, your business could be subject to any or all of the following tax types:
- Income Taxes
- Payroll Taxes
- Sales Taxes
For small businesses with employees, it’s especially important to pay attention to payroll taxes. Failure to correctly file could end with a devastating tax bill. Businesses with employees are required to withhold the following from each employee’s paycheck:
- Federal Withholding: Employees declare how much income tax will be withheld on their W-4 form. This is how employees pay their income taxes.
- Federal Unemployment (FUTA): Employers are required to pay a percentage of gross wages (usually about .6% of the first $7,000.00 in wages for each employee) to fund federal unemployment benefits.
- State Unemployment: Nearly all 50 states have their own version of FUTA that must be paid by the employer. Both are paid only by the employer, never the employee.
- OASDI (Social Security): Employers are required to withhold 6.2% of employees’ gross wages for social security. The employer is also required to match that amount on their tax bill.
- State Withholding: The same concept as federal withholding except for state income taxes an employee may owe. It’s important to note that not every state has an income tax.
- Medicare: Employers are required to withhold and match 1.45% of the gross wages for Medicare.
Tip #3: Adhere to deadlines and due dates
Timeliness is everything! Here are business tax extension deadlines for 2019:
- Sole proprietorships and LLCs: October 15, 2019
- Partnerships: September 16, 2019
- S Corporations: September 16, 2019
- C Corporations: October 15, 2019
Tip #4: Know your deductions
- Utilities: Electricity for your workplace or operational facility is fully deductible. Be sure to keep a keen eye on just how much you spend per month on utilities to have the most accurate amount on your file.
- Car and truck expenses: Small businesses that use a vehicle, such as a car, light truck, or van may be able to deduct the cost of operating the vehicle. This is only applicable for business that keep the required records for proof. The need to keep records of costs (gasoline, oil changes, etc.) does not apply if you rely on the IRS standard mileage rate of 58 cents per mile in 2019 instead of deducting your actual expenditures. You can only use the standard mileage rate if you own or lease the vehicle.
- Contract labor: If your business uses freelancers or independent contractors to meet your labor needs, the incurred costs are tax deductible. Be sure to fill out Form 1099-MISC to all freelancers or contractors who have received $600 or more from you in the tax year.
With these essential tips under your belt, you’ll be better prepared to handle your new country and its tax code obligations without breaking a sweat!