One of the most aggravating aspects of being in business is taxes-understanding them, keeping up with them and, worst of all, paying them. But there are some things you can do as a new business owner to make the process a little less painful. Attorney Stephen Fishman, author of Wage Slave No More: Law & Taxes for the Self-Employed (Nolo Press, $24.95) offers the following tips:
1. Understand the various taxing entities. All levels of government impose taxes. Be familiar with the requirements of each. Federal taxes include income, self-employment, estimated and employment taxes. State taxes include income, employment, sales, property, and other types of taxes that may be unique to your state. Many municipalities impose sales and property taxes on business equipment and furniture. A few large cities even collect income taxes.
2. If appropriate, preserve your independent contractor status. If you operate as an independent contractor, protect that status by using written contracts and controlling how and when you do your work. If you hire independent contractors, do the same for them. If the IRS determines that a person claiming to be an independent contractor is really an employee, you could lose valuable tax deductions.
3. Keep good records. Good records help avoid trouble with the IRS and give you an accurate idea of how your business is performing.
4. Understand what's deductible and what's not. A deduction is an expense or the value of an item that you can subtract from your gross income to determine your taxable income and reduce the amount of tax you pay. Even if you have someone else prepare your tax returns, take the time to learn what you can deduct so you keep the right records and file an accurate return.