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I Owe, I Owe, It’s Off to Work I Go

The Business View – April 2016 / Small Business Corner

By: Karen C. Simmons

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It’s hard to be in business. It seems like a tax has to be paid every time we turn around. Whether its sales tax, payroll tax, self-employment tax, privilege tax, excise tax, personal property tax or federal and state income tax, all taxes must be paid.

 

Now don’t get me wrong, taxes aren’t the worst thing in the world. Myself, I very much appreciate when the firemen and policemen come to my aid when I need them. Their salaries come from taxpayers. The question is: How do I plan so I don’t pay too much?

 

It’s never too early to start thinking about taxes. Having your information organized and ready throughout the year gives your accountant the time to plan and review possible tax credits and deductions. A tax credit is very different than a tax deduction. A deduction reduces your taxable income so you save the tax, which is a relatively small percentage. A tax credit offsets tax. It is dollar for dollar.

 

Do You Qualify?

 

Utilizing tax credits can be a very effective tax-saving method. One example in which a small business may qualify is the Small Business Health Care Tax Credit. If a business has fewer than 25 full-time equivalent employees, pays an average wage of less than $50,000 a year and pays at least half of employee health insurance premiums, then it may qualify, but you’ll want to contact your tax advisor for details.

 

Another common tax credit is the Credit for Employer Taxes Paid on Tips. We have many fantastic locally owned restaurants in our area and this credit may allow them to claim a credit for Social Security and Medicare taxes paid or incurred by the employer on certain employees’ tips. Two conditions must be met: employees received tips from customers for service, and you incurred employer Social Security and Medicare taxes on those tips. These are just two examples of the most common credits available. Your tax advisor will know if you’re eligible for others.

 

We all want to deduct as much as we can to reduce our taxable income. What is a deduction, and what makes it deductible? Many times this depends on the activity of your business. Farmers, artists, truck drivers or physicians all spend money in order to make money. These monies, as a rule of thumb, are deductible if not for personal use.

 

A great tax-planning tool for everyone is retirement planning. Many different vehicles exist now to ease the pain for business owners. Whether it is a simple IRA or 401(K), they all have their separate rules. The great fun in planning is finding the best fit for you, your business and your cash flow.

 

Simmons is president of Karen C. Simmons PC and Payroll Vault. To learn more, contact her at 251-662-1235 or visit www.karensimmonscpa.com.

 

 

Click here to read The Business View – April 2016