Entity Formation | Form Your Business in the United States Tax Tips

What are the small business tax issues that may arise?

There’s no escaping the need to fulfill your tax obligations. Small businesses should be in the know about the United States Tax Code. Don’t be caught unaware when such small business tax issues creep up at the end of the year. Be proactive in keeping your tax liabilities to a minimum.

So, don’t get threatened by thinking that the IRS is out to get you. Let’s look at some common small business tax issues so the IRS can become more like a friend than a foe.

What are the allowable deductions for a small business?

Deductible expenses are more common in the startup phase of the enterprise. Before any initial sale is completed, the expenses getting to that point can be considered as deductions. Office equipment, purchasing computers, renting a space, and such qualify for these deductions.

Your profit will be the main number used to figure out your tax. This also means that the money left over after listing all the deductions is subject to such a tax. Please carefully list all the expenses incurred so this can be properly recorded and deducted to determine the tax rate.

To be critically informed about which deductions are allowed, please consult with a certified public accountant or a reputable tax attorney.

What are the reimbursements allowed when it comes to medical expenses?

Immediate relatives, family members, and most of all spouses almost always do not get classified formally as employees. This may become one of those significant small business tax issues later on, because remuneration continues to be remitted, but employment classification hasn’t been formalized.

There is a medical expense deduction called the Medical Expense Reimbursement Plan (MERP). Medical expenses not covered by insurance can be utilized by the small business owner as a tax-free benefit. But, this should be relegated only for staff under formal employ. This means family members that are not classified as contracted employees may not be able to fall under the MERP. These medical expenses may unfortunately become non-deductible because of the undeclared status.

When family members are formally recognized, through a qualified MERP, deductions for medical expenses become valid. Health insurance premiums will be accepted as a deduction and this can be a big saving for companies that shoulder such medical costs.

Even if relatives are not fully involved in the business, the documentation should be present to recognize them as employees. These allowable deductions can bring down the tax rate especially when the paperwork is found to be in sufficient order.

What might be considered as a wrong business structure and prove costly later on?

Your business structure can make a significant impact to your taxes. The assessment for tax will be based on how your business is organized. Be well versed in what you can save being filed as a corporation or as an LLC. There is limited insulation from tax liabilities and legal exposure when the LLC model is used.

For most businesses, it is not the wrong choice to adapt such an LLC structure. The business needs to be set up correctly so audit exposure can be minimized wile tax savings can be maximized.

Dealing with small business tax issues should be well-researched and thoroughly reviewed. The guidance of a tax attorney can prove to be quite helpful. If they are experienced in the Tax Code and related small business matters, you should be able to faithfully fulfill your tax obligations.

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