Smart financial planning is critical.        

Launching a new business is exciting! Despite the excitement, it often comes with confusion and stress regarding taxes. First-time owners typically struggle with what they’ll owe, which can lead to incorrect budgeting and overspending.

Here at A.P Tax and Accounting, we’re always ready to take a personalized look into your business to prepare you for tax season. That’s why we’ve outlined some of the tax implications you may be responsible for below.

Income Taxes

It’s important to remember that any profit your start-up makes in a year will be considered as taxable earnings. This is true regardless of how the money is spent. Meaning, even if the earnings are re-invested in the company it will incur income tax.

Keep in mind that you should still track how money is being spent (with the use of receipts, online records, copies, etc.) as most business expenses can be deducted and used to offset this free.

Self-Employment Tax

The net profit from a start-up will incur the self-employment tax. Despite this being an added expense, the tax does pay towards Social Security and Medicare. The self-employment tax is 15.3% of your net earnings of up to $127, 200 and Medicare tax is at a 2.9% rate on the excess. However, an additional percentage will be added to higher-earners and married taxpayers that file separately.

But, if your business is categorized as a corporation it will not be subject to self-employment tax.

Estimate Payments

Any small business owner (including freelancers and independent contractors) that owe more than $1,000 in taxes will need to pay quarterly amounts. These four payments are made every three months and are designed to help pay for Social Security and Medicare. If you fail to pay on these dates you may incur additional penalties and interest.
Sales Tax

If the company you are starting is a retailer that sells goods you will be responsible for collecting sales tax on all the items. These taxes are dictated by the state that the seller is located in. However, things can get confusing if items are being sold online. That’s because some states charge based on where the seller is located where others base it on the buyer’s location.

Regardless, it is best to speak with a professional here at A.P Tax & Accounting to ensure you are charging the right amount of sales tax on your items throughout the year.

Property Taxes

This tax is only applicable for entrepreneurs that own a commercial property. If you do own property, the amount of property tax that you’ll have to pay will vary depending on your location. Given how complex this can be, its best to seek the advice of a professional to guide you through all the details of the state, county, and local laws.

Excise Tax

Excise taxes can be tricky to understand and leave you will a large bill at the end of the year if you are not prepared for it. These taxes are dependent on industry and are not common as they are only applied to specific products. Certain products that require an excise tax are gasoline, cigarettes, and alcohol.

These taxes are typically held in trust by business owners before they are paid to the government by using a Form 720.

However, proper budgeting and financial planning are essential when holding funds in trust as overspending or forgetting a payment can result in hefty fines.

Starting a new business is a rewarding venture! However, smart financial planning and research are needed to make sure you’re successful. Speak with a member of our team today for an in-depth look at yours.

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