Small Business Taxes

How will the new tax bill affect your business? Ask an On Call lawyer today and get quick answers to your tax questions.
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Dinesh Singhal, Esq.

Rocket Lawyer On Call Attorney

Answers to Small Business Tax Questions

How does the new tax law affect me?

The Tax Cuts and Jobs Act became effective as a law on January 1, 2018. Learn what the new law means for businesses, homeowners, and residents of certain states.

Does my small business need to file payroll taxes?

If you have employees, yes. Employers are responsible for withholding payroll taxes from employee paychecks. Not only will you need to withhold federal tax obligations but also state and local taxes along with FICA (Social Security and Medicare). You can work with an accountant to help you navigate payroll taxes and some business accounting solutions also include helpful tax software features to help you with day-to-day operations. Alternatively, if you do not have traditional employees but contract with contractors, temporary workers or freelancers, you may not be responsible for withholdings. In this situation, usually the contract worker or staffing agency is responsible for tax obligations. Regardless of your specific situation, it is always a good idea to consult with a tax attorney to ensure that you are managing your tax obligations correctly.

What kind of corporation is the best for small business taxes?

While most small businesses are sole proprietorships, this situation is not an actual business entity and offers no protection for the business owner. A sole proprietor is responsible for all tax obligations and if sued their personal assets are at risk. For these reasons, many choose to form a Limited Liability Company (LLC). LLCs provide personal liability protection and avoid the "double taxation" issue that C-Corporations (C-corps) experience. S-Corporations (S-corps) provide the protections that LLCs offer as well as the ability to transfer stake interest without adverse tax consequences, the simplicity of cash accounting and an increased business credibility. Regardless of your business type incorporating your business is a smart move towards protecting your personal assets.

Why does my small business need a business tax ID?

A business tax ID, also known as an Employee Identification Number (EIN), is like a social security number for your business. The IRS uses this number to tie your employee's tax information to your company; however, most businesses who do not have employees obtain an EIN, so business taxes can be filed separately from personal filings. Acquiring an EIN requires that you incorporate your business. When you incorporate with Rocket Lawyer, we can help you obtain an EIN as part of the filing process. You can also apply for an EIN online, by fax or via traditional mail. Applying online is the preferred method by the IRS. Using this method, you can obtain your new EIN almost immediately.

How long should I keep business tax records?

You will find various answers to this question. The easiest answer is seven years or longer. On the IRS website, you will see varied answers between two and seven years depending on your circumstances. But to keep all variables covered, seven years is a safe amount of time. However, for your own personal business reasons, you may want to keep them longer to help track the financial history of your company. In addition, you should keep property records until you dispose of the property. These records will help you with claiming depreciation, amortization and sales of properties. Property records are also helpful if you need to file an insurance claim for stolen or damaged property. Some small business accounting software can help you track property purchases as well.

What if personal and business expenses overlap?

This happens often in small businesses. Deducting business expenses that overlap with personal use is allowed by the IRS, but you'll need to keep infallible records. Audits are common with this type of tax scenario. The most common example is when business owners write off a portion of their personal living space as a business space or car expense deductions. Again, keeping perfect records is recommended in preparation for an audit. The IRS says that you can write off partial use. For example, if you take out a personal loan to cover a business expense but use part of it for personal use, you can claim the portion used for your business.

What if I sell my business?

Selling a business is a complex process and most often you'll benefit from working with your accountant and a business tax lawyer to facilitate the process properly for both parties. While you and your buyer may easily agree upon a sale price for the "entire" company often the IRS will see it as a sale of assets. Assets may include property, equipment and more. Again, this is another good reason to keep meticulous records. Since selling a company often involves partnership interests, corporation interests, investors and the liquidation of assets, it is highly recommended that you acquire experienced, professional assistance from a lawyer rather than trying to do it on your own.

Do I need to charge sales tax for online sales?

Depends. In the past, most businesses did not have to collect state sales unless they had a "presence" in the state being sold to such as an office, storefront or warehouse. Also in the past, buyers in good faith were trusted to report to their state any items bought from other states or online. However, since online sales have increased dramatically, required sales tax collections is starting to become common. If you sell products directly to your customers, you most likely only must collect sales tax for items sold within your state. However, if you work with companies such as Amazon to sell your product you may be considered to have a presence in all states and sales tax will be collected from your customers buying through the online entity.

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