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SMALL BUSINESS TAX HELP

Only two things in life are sure, death and taxes. Not dealing with death here... but since taxes are an important part of the accounting equation which determines the profitability of your business, accordingly, they must be dealt with. There are two different types of taxes that a small business ordinarily has to deal with.

The first of these is sales tax. What products and services that are taxable vary from state to state, county to county, and city to city (and so do the tax rates). In most instances professional services are not subject to sales tax. Additionally, if part of a service involves labor, then that portion is ordinarily exempt from sales tax as well. Also, if you are selling a product or service to a customer who is in another state, ordinarily you do not have to charge them any sales tax at all.

Sales taxes are a pass through item (the customer pays them, not you), but you still have to collect them, escrow them in your bank account, and then regularly file a state tax return for them with a check accompanying it. This can be a bookkeeping nightmare. If you do not have a good accounting system that will handle this, you are in deep doo doo for sure.

The other tax that small businesses have to deal with is income tax. Assuming that the business is not incorporated, this tax is really personal income tax for the owner. The profit (or loss) from the small business is reported on Schedule C of the owners personal tax return and then carried through to the main 1040 form.

I'm not going to attempt to deal with corporate income tax. My thinking on this is that if you are incorporated, you have raised up the complexity level of both your accounting and tax preparation requirements beyond that which I am willing to deal with here. I would also add that I hate tax preparation, and find it difficult to sign any check which is made out to the IRS. For this reason I have always used TurboTax for tax preparation. QuickBooks will automatically carry through to TurboTax Schedule C, which enormously simplifies the task.

The major issues to deal with here on the subject of taxes is being able to properly account for them, separate them out from your operating expenses, properly estimate your tax liability as you incur it, escrow the funds necessary to pay the quarterly estimates, and account for this on the bottom line (profit/loss) of your small business. It makes no difference whether you leave the profits from your business in your business bank account or withdraw them for personal use... they are taxable, you have to escrow the tax, and you have to pay your quarterly estimates. This is a rule. If you can't do this, you should either not start a business in the first place, or get out of business as fast as you can. If you fall behind on your taxes, you will lose more than your business.

Again, this is a subject which would require many more pages to deal with properly. I fully intend to do so, and in fact am presently going back and adding addtional pages for each subject. There will be much more about Taxes here in a very short while. Your patience and tolerance is much appreciated.

The first forum is now up and running. If you have a problem or a question, and need a helpful, straightforward answer for it... just click on the link below.

Small Business Helper Forum