<p>As a small business owner, you should expect to pay total taxes of 20% to 30% of your business’s net profit. Your tax planning strategy depends on whether you pay north or south of this range. Our article breaks down the different aspects of small business taxes so you can pay taxes seamlessly.&nbsp;</p>



<p>Proper tax planning starts with understanding what goes into calculating a small business’s taxes, followed by partnering with a trusted tax advisor to help implement that understanding. Tax specialists can help navigate the complexities of tax forms, tax returns, income tax returns, business income tax credits, small business tax rates, local taxes, net earnings, tax credits, tax brackets, personal income tax, and more relevant small business tax year topics.</p>



<p>Let’s first look at the different types of small business taxes, then at the different business structures and how the type of structure you choose will affect your business’s taxes.</p>



<h2 class="wp-block-heading">Different Types of Small Business Taxes</h2>



<p>Here are the most common types of taxes a <a class="link" href="https://1800accountant.com/services/small-business-taxes">small business must pay</a>. Adding to the complexity, each type of tax has its own small business tax rate.&nbsp;</p>



<p><strong>Income Taxes.</strong> Taxes paid on your business’s profit after all business expenses are paid and qualifying individual income tax deductions are applied.</p>



<p><strong><em>Income Tax Rates:</em></strong> Starts at 10% and can go as high as 37%.</p>



<p><strong>Self-Employment Taxes.</strong> Taxes paid on your business’s profit after all business expenses are paid. The government uses these taxes to fund <a class="link" href="https://www.fool.com/the-ascent/small-business/articles/why-you-have-to-pay-more-social-security-tax-if-you-run-your-own-business/" target="_blank" rel="noreferrer noopener">Social Security and Medicare benefits</a>.</p>



<p><strong><em>Self-Employment Tax Rates:</em></strong> For 2023, you’ll pay 15.3% on the first $160,200 net profit and 2.9% on all net profits above $160,200.</p>



<p><strong>Payroll Taxes.</strong> Taxes paid on the wages and salaries of employees. A state’s unemployment tax, which covers that state’s unemployment compensation fund, is also considered a payroll tax paid by the employer.</p>



<p><strong><em>Payroll Tax Rates:</em></strong> You’ll pay 7.65% on each employee’s taxable earnings up to $160,200 and 1.45% above $160,200.</p>



<p><strong>Capital Gains Taxes.</strong> Taxes paid when you sell a business asset - such as a vehicle, equipment, or a building - for more than what you originally paid for the asset.</p>



<p><strong><em>Capital Gains Tax Rates:</em></strong> If you own the asset for less than one year, you’ll pay up to a 37% tax rate. If you have owned the asset for over a year, your tax rate will be 0%, 15% or 20%.</p>



<p><strong>Sales &amp; Excise Taxes.</strong> Sales taxes are typically collected as a percentage of the overall selling price of goods or services, such as a 7% sales tax on certain types of clothing. Excise taxes are imposed on specific goods and services, such as an 18.3 cents per gallon federal excise tax on gasoline in the United States.</p>



<p><strong><em>Sales &amp; Excise Tax Rates:</em></strong> Varies by jurisdiction and the product or service being taxed.</p>



<p><strong>Dividend taxes.</strong> Taxes paid if a corporation makes a distribution to a stockholder. This is most common for small businesses if the business is a C corporation and makes a payment to the sole stockholder.</p>



<p><strong><em>Dividend tax rates:</em></strong> Most corporate dividend payments are considered “qualified” and are subject to preferential tax rates of either 0%, 15%, or 20%. If a dividend is considered “non-qualified,” the tax rate can be as high as 37%.</p>



<p><strong>Property taxes.</strong> Property taxes may be most common when talking about residential homes. Still, the same concept can apply to other types of property, including machinery, vehicles, or other assets owned by a business.</p>



<p><strong><em>Property tax rates:</em></strong> Varies by jurisdiction and the asset being taxed.</p>



<h2 class="wp-block-heading">Business Structures and How Each is Taxed</h2>



<p>You can pick from five primary business structures for your business. Here’s a quick look at each type and how each is taxed.</p>



<p><strong>Sole Proprietorships.</strong> A <a class="link" href="https://1800accountant.com/blog/taxes-sole-proprietorships">sole proprietorship</a> is an unincorporated business run by one person. The business itself doesn’t pay any taxes. Instead, all the business’s profit is considered to pass through to the owner. This is referred to as a “pass-through entity.”</p>



<p><strong><em>How a Sole Proprietorship is Taxed:</em></strong> A sole proprietorship's owner pays income and self-employment taxes on the business’s profit. After combining the business’s total federal income tax, state income tax, and federal self-employment tax liabilities, the business’s total tax rate is usually between 20% and 30%.</p>



<p><strong>Partnerships.</strong> A partnership is an unincorporated business run by two or more people. Similar to a sole proprietorship, the business is considered a pass-through entity. Instead, all the business’s profit is considered to be the owner's income.</p>



<p><strong><em>How a Partnership is Taxed:</em></strong> After the partnership calculates its total net profit, the profit is divided among the partners. Each partner pays income and self-employment taxes on their share of the partnership’s profits. After combining all types of taxes, each partner’s total tax rate is usually between 20% and 30%.</p>



<p><strong>Limited Liability Companies (LLCs).</strong> LLCs are a business structure (also a pass-through entity) that protects the owner(s) from personal responsibility for the business’s liabilities and debts.</p>



<p><strong><em>How a Limited Liability Company is Taxed:</em></strong> The IRS considers an LLC a partnership for tax purposes. Therefore, each LLC owner pays income and self-employment taxes on their share of the LLC’s profits. Each owner’s total tax rate is usually between 20% and 30%.</p>



<p><strong>S Corporation.</strong> An S corporation is another pass-through entity that protects the owner(s) from personal responsibility for the business’s liabilities and debts, similar to an LLC.</p>



<p><strong><em>How an S Corporation is Taxed:</em></strong> An S corporation's owner(s) pays income taxes on their share of the business’s profits. However, not all an owner’s share of business profits is subject to self-employment taxes. Because of lower self-employment taxes, each owner of an S corporation usually pays an overall tax rate of between 15% and 25%.</p>



<p><strong>C Corporation.</strong> A C corporation protects the owner(s) from personal responsibility for the business’s liabilities and debts, similar to LLCs and S corporations.</p>



<p><strong><em>How a C corporation is Taxed:</em></strong> This is the only type of business entity that pays a tax. The business pays a corporate tax rate of up to 21% on its net profit.</p>



<p><strong><em>How C corporation Owners are Taxed:</em></strong> The owners of a C corporation have two options to pay themselves - with dividends or by being paid a salary. While dividends have a lower tax rate (20% maximum) than salaries (37% maximum), remember that a C corporation can deduct wages from its net profit.</p>



<p>The strategy of getting a C corporation’s taxable income as close to $0 as possible by maximizing the total amount of tax-deductible salaries often yields a lower tax rate than by issuing dividends and not maximizing the total amount of tax-deductible salaries.</p>



<p>When combining the corporate tax rate and either the income tax rate or the dividend tax rate, each owner of a C corporation usually pays an overall tax rate of between 15% and 25%.</p>



<h2 class="wp-block-heading">Small Business Tax Deductions</h2>



<p>The easiest way to <a class="link" href="https://1800accountant.com/blog/how-to-reduce-tax-liability">reduce your small business’s tax rate</a> is by taking advantage of tax deductions. Here are some of the most common deductions.</p>



<ul>
<li><strong>Advertising and Marketing.</strong> You can deduct anything you use to promote your business.</li>



<li><strong>Inventory.</strong> If you buy something to turn around and sell that same item, you can deduct the cost of that item.</li>



<li><strong>Vehicle Expenses.</strong> You can deduct the use of a vehicle if it’s used for business purposes. There are two ways to calculate this deduction: a.) Take the total miles driven for business purposes and multiply it by a standard rate per mile as defined by the IRS (65.5 cents for 2023), or b.) Add up all actual expenses for the vehicle in question (i.e., fuel, insurance, repairs, etc.)</li>



<li><strong>Travel.</strong> You can deduct all transportation, lodging, and food expenses if you travel on official business.</li>



<li><strong>Business Meals.</strong> You can wine and dine a current or prospective customer and deduct 50% of the meal’s cost.</li>



<li><strong>Salaries and Benefits.</strong> Wages and salaries are one of the largest expense categories for small business owners.</li>



<li><strong>Taxes.</strong> You can deduct state and local income taxes against federal income taxes. (Sorry, you can’t deduct federal income against federal income taxes.)</li>



<li><strong>Depreciation.</strong> If you buy something expensive, like a vehicle or a piece of equipment, you may be required to spread the cost of these assets over several years. However, there are special rules for small businesses that allow the entire cost of certain assets to be tax deductible in the year of acquisition.&nbsp;</li>
</ul>



<h2 class="wp-block-heading">How to Get Your Small Business Taxes Done Right</h2>



<p>As you can see, when it comes to taxes, there’s a lot of information on tax laws, tax rates, and tax income you need to keep track of as a small business owner. Here are some tips to help you make tracking and paying your taxes easy.</p>



<ul>
<li><strong>Set aside a percentage of all deposits.</strong> Budgeting to pay your taxes is essential if you don’t want to fall behind. Consider setting aside a flat percentage, for example, 30%, of every cash deposit for taxes. You might be a little over some months and a little under in other months, but you won’t be at zero.</li>



<li><strong>Get a schedule.</strong> Put together a calendar that shows every tax-related due date - deadlines when payments need to be made and deadlines when returns must be filed. Put any late payment or tax filing at the top of your priority list until it gets corrected.</li>



<li>Partner with a trusted tax advisor for tax preparation. Remember that you don’t have to figure out small business taxes and business income alone. A 1-800Accountant <a class="link" href="https://1800accountant.com/services/small-business-taxes">small business tax expert</a> is just a few clicks away. Please contact our tax professionals with any questions about compliance with your small business taxes.</li>
</ul>

As a small business owner, you should expect to pay total taxes of 20% to 30% of your business’s net profit. Your tax planning strategy depends on whether you pay north or south of this range. Our article breaks down the different aspects of small business taxes so you can pay taxes seamlessly.&nbsp; Proper tax [&hellip;]

how-much-tax-does-small-business-pay_blog-header

How Much Does a Small Business Pay in Taxes?

<p>Business owners, whether operating as an independent contractor, limited liability company, or S corporation, must understand how taxes impact their business income. You must be familiar with the strategies and protocols available that aid in maximizing your tax refund. If you're running your business as an independent contractor, use this ultimate guide to navigating taxes to keep more of your hard-earned money in your pocket.&nbsp;</p><h2 class="wp-block-heading">What Is an Independent Contractor?</h2><p>Independent contractors, including self-employed individuals or sole proprietors who run a sole proprietorship, enjoy advantages that traditional employees do not. <a class="link" href="https://www.pcmag.com/news/independent-contractor-or-employee-affects-taxes" target="_blank" rel="noreferrer noopener">Employees</a> are usually expected to work a set schedule under the direct supervision of someone else. But it's not all upside for contractors. Traditional employees don't usually have to pay taxes throughout the year!<br /></p><p>As an independent contractor, you have the freedom of a flexible schedule. You can also pick and choose which projects to take on. However, this freedom comes with the additional responsibility of preparing and filing a tax return throughout the year and keeping up on the latest changes to tax law that impact your state and industry, among other tasks.&nbsp;</p><h3 class="wp-block-heading">Income Requirements for Independent Contractor Taxes</h3><p>Whether you’re in the early stages of establishing your business or <a class="link" href="https://www.businessinsider.com/personal-finance/how-to-pay-taxes-on-side-jobs-income-irs" target="_blank" rel="noreferrer noopener">freelancing on the side</a>, you need to be aware of the income tax filing guidelines.&nbsp;</p><p>So, how much do you have to make as an independent contractor to file a tax return? According to the IRS, independent contractors must file taxes if their net earnings exceed $600 annually. Net earnings, also known as net income, can be calculated by subtracting the total cost of goods from your total revenue.</p><p>This amount is the standard income requirement for independent contractor taxes, but keep in mind there are still other requirements that can be found in Form 1040 and 1040-SR. These can depend on certain factors such as marital status, income as a dependent, or if you owe special taxes.</p><h2 class="wp-block-heading">Filing Tax as an Independent Contractor</h2><p>Filing taxes as an independent contractor may seem intimidating at first, but it is easy to grasp with guidance and a little experience.</p><h3 class="wp-block-heading">Two Taxes to Pay as an Independent Contractor</h3><p>Independent contractors are responsible for everything, from business expenses to taxes. A business usually deducts taxes from a W-2 employee’s paycheck, but taxes for <a class="link" href="https://1800accountant.com/blog/5-tax-issues-that-cause-irs-trouble-for-1099-workers">1099 independent contractors</a> will differ.<br /></p><p>The IRS identifies the following taxes for independent contractors:</p><ul><li><a class="link" href="https://1800accountant.com/blog/self-employment-tax-2"><strong>Self-employment tax</strong></a><strong>:</strong> Also known as an SE tax, includes Social Security and Medicare taxes. This tax rate equals 15.3%, which includes 12.4% attributed to Social Security and 2.9% to Medicare costs. You’ll use Form 1040 or 1040-SR to calculate your self-employment tax.</li><li><strong>Income tax:</strong> This is a basic requirement for employees and <a class="link" href="https://1800accountant.com/blog/sole-proprietorship">independent contractors</a>. Use a <a class="link" href="https://1800accountant.com/blog/understanding-the-schedule-c-tax-form">Schedule C</a> form to report your profits or losses.</li></ul><h2 class="wp-block-heading">Important Tax Deadlines for Independent Contractors</h2><p>While traditional employees file income taxes in April, independent contractors must pay <a class="link" href="https://1800accountant.com/blog/quarterly-estimated-taxes">quarterly estimated taxes</a> throughout the year. Quarterly estimated taxes are calculated using Form 1040-ES. 1-800Accountant created an easy-to-use <a href="https://1800accountant.com/calculators/quarterly-tax-calculator" target="_self">quarterly estimated tax calculator</a> that you can use to see estimated year-to-date quarterly tax payment liability.</p><p>Estimated taxes are due each quarter, with the deadline usually falling on the 15th of the month. There are exceptions for holidays or if the date falls on a weekend.&nbsp;</p><p><br />Quarterly estimated tax due dates for 2023 are as follows:</p><ul><li>Q1: April 18, 2023</li><li>Q2: June 15, 2023</li><li>Q3: September 15, 2023</li><li>Q4: January 16, 2024</li></ul><h2 class="wp-block-heading">7 Common Tax Write-offs for Independent Contractors</h2><p>A majority of independent contractors aren’t expert bookkeepers, which means they may overlook these common tax deductions that can help minimize their tax burdens.</p><h3 class="wp-block-heading">1. Home Office</h3><p>Consider all the expenses that go into a home office, such as supplies and utilities like phone and internet. Deductions for a home office can be tricky but provide valuable tax savings.</p><h3 class="wp-block-heading">2. Health insurance</h3><p>Since independent contractors don’t have the option of employer-provided healthcare, they can deduct healthcare insurance premiums.</p><h3 class="wp-block-heading">3. Retirement contributions</h3><p>The same scenario for health insurance could also apply to retirement contributions, which are not being withheld.</p><h3 class="wp-block-heading">4. Marketing</h3><p>Any expenses that go into your marketing or advertising duties should be tracked, as these may also qualify as a tax write-off.</p><h3 class="wp-block-heading">5. Professional services</h3><p>There may come a time when you need to outsource certain services, such as hiring a lawyer to review legal documents or an accountant to handle your small business taxes. These expenses are tax-deductible, so don’t forget to track them!</p><h3 class="wp-block-heading">6. Subscriptions</h3><p>If you pay dues to a professional organization or subscribe to an industry-specific publication, you can likely write off these expenses as long as they relate to your business.</p><h3 class="wp-block-heading">7. Travel</h3><p>Independent contractors may need to travel for business, whether meeting with a client or attending a trade show. Record these travel expenses, as they can also be deducted. However, remember that commuting (driving between home and a principal place of business) is not deductible. Still, you are able to deduct travel between a principal place of business and another work site.</p><h2 class="wp-block-heading">Filing Quarterly Taxes as an Independent Contractor</h2><p>Not only do you have to pay quarterly estimated taxes, but you also must file an annual return. Here are some simple steps to keep you on the right track:</p><ol><li>Calculate your net profit or loss, and remember to include the deductions you want to claim. This is known as your Adjusted Gross Income (AGI). This should be the first step, as it will determine whether you must pay self-employment and income taxes.&nbsp;</li><li>Determine your income tax with the following calculation: AGI x tax rate = income tax owed. Your tax rate can be found with this <a class="link" href="https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2022" target="_blank" rel="noreferrer noopener">income tax bracket</a>.</li><li>If you calculate a net income of over $600 for the year, complete tax Form 1040-ES to determine your quarterly estimated tax.&nbsp;</li><li>Calculate your taxable income for the SE tax using this formula: estimated total income x 92.35% = taxable income. You can then multiply your taxable income by 15.3%, which tells you how much you need to pay for the SE tax.</li><li>Add your income taxes and SE taxes to calculate your total estimated taxes. Divide this number by four to get your estimated quarterly tax payment.</li><li>Pay with a voucher and a check, or pay online through the IRS website.</li></ol><h2 class="wp-block-heading">Work with a Tax Professional to Navigate Independent Contractor Taxes</h2><p>Calculating and filing taxes as an independent contractor can be exhaustive, whether during tax season or at the conclusion of a tax year. But, paying taxes on self-employment income is non-negotiable. The IRS not only expects regular payments throughout the year but must also be calculated accurately to avoid penalties and increased IRS scrutiny.&nbsp;<br /><br />Juggling tax responsibilities while running a business can sometimes feel impossible, which is why so many independent contractors <a class="link" href="https://1800accountant.com/blog/reasons-you-need-accountant-self-employment">trust 1-800Accountant</a>, America's leading virtual accounting firm for small businesses, for their professional needs.&nbsp;</p><p>Whether it's small business taxes, quarterly estimated tax payments, or any of our professional accounting services, we have the solution you need at a price that works for you. Schedule a quick consultation – typically 30 minutes or less – to learn how we can help.</p>

<p>Business owners, whether operating as an independent contractor, limited liability company, or S corporation, must understand how taxes impact their business income. You must be familiar with the strategies and protocols available that aid in maximizing your tax refund. If you’re running your business as an independent contractor, use this ultimate guide to navigating taxes […]</p>

navigating-taxes-as-independent-contractor_blog-header

The Ultimate Guide to Navigating Taxes as an Independent Contractor

<p>As a small business owner, you’ve got a lot of responsibilities. You’re busy running your business, ensuring happy customers, and managing employees. The more you expand, the more you’ll have to do, primarily if you use contractors. We break down the complexities of tax forms, IRS forms and information returns, specifically the 1099-MISC and the 1099-NEC, and all filing requirements for small business owners to issue to independent contractors and freelancers.</p>



<p>Unlike salaried W-2 employees, contractors require a <a class="link" href="https://1800accountant.com/blog/how-to-file-taxes-independent-contractor">1099 form to do their taxes</a>, which you must provide. It might seem intimidating if you’ve never issued a 1099, but there’s no need to worry. We will explain what 1099s are and what you should do with them so you and your contractors are covered!</p>



<h2 class="wp-block-heading">What is a 1099 form?</h2>



<p>A 1099 form is provided to your non-W-2 employees.</p>



<h3 class="wp-block-heading">What is the difference between 1099-MISC and 1099-NEC?</h3>



<p>1099-MISC and 1099-NEC are the most common types of 1099s and the forms you will likely use for your non-salaried workers. 1099-MISC is for miscellaneous income payments, while 1099-NEC would be utilized for non-employee compensation.&nbsp;</p>



<h2 class="wp-block-heading">How to Generate a 1099 Form as a Small Business</h2>



<p>As a small business owner, there are several ways to generate the respective 1099 form that you need to issue to contractors who work for your company. As you can see below, there are more traditional paper approaches, online options, and working in-person or online with a virtual tax accountant.&nbsp;</p>



<ul>
<li>PDF 1099 downloads</li>



<li>Paper 1099s</li>



<li>Payroll software</li>



<li>For 1099 tools</li>



<li>Accounting software</li>



<li>Accountants</li>
</ul>



<h2 class="wp-block-heading">Steps for Issuing a Form 1099</h2>



<p>Now that we have detailed what a 1099 form is, how to generate it, the difference between a 1099-MISC and 1099-NEC, we break down the steps for small business owners to issue a 1099 form for their contractor employees.&nbsp;</p>



<h3 class="wp-block-heading">Collect personal information from vendors/contractors</h3>



<p>First, small business owners must gather contractors' information to issue the form 1099, which includes the following.&nbsp;</p>



<ul>
<li>Home address</li>



<li>Legal name</li>



<li>Tax ID number</li>



<li>Reconciled income payments</li>
</ul>



<h3 class="wp-block-heading">Complete the Copy A form for each vendor/contractor and file it with IRS</h3>



<p>Next, small business owners must complete the Copy A of Form 1099-NEC, which must&nbsp; be submitted to the IRS by January 31, regardless of whether you file electronically or by mail.&nbsp;</p>



<p>When you file a physical Form 1099-NEC, you must obtain a physical Form 1099-NEC, fill out Copy A, and mail it to the IRS for it to be filed successfully.&nbsp;</p>



<h3 class="wp-block-heading">Provide Copy B to vendor/contractor</h3>



<p>After completing Copy A form and filing it with the IRS, the next step is to send Copy B to your independent contractors by January 31. To do this, you can download and print Copy B from the IRS website and send it to each of your independent contractors.&nbsp;</p>



<h3 class="wp-block-heading">Save a Copy for your Records</h3>



<p>Finally, ensure compliance and organization for your small business and your financial records by saving a copy of all of the 1099 forms.</p>



<h2 class="wp-block-heading">Who should receive a 1099-MISC or a 1099-NEC Form?</h2>



<p>The IRS has created several versions of the 1099 form. While you will likely use a 1099-MISC or a 1099-NEC, your workers may require a different variant. Some of the other 1099 forms include the following:&nbsp;</p>



<ul>
<li>1099-INT for reporting income from interest</li>



<li>1099-DIV for reporting cash paid for dividends</li>



<li>1099-R for worker pensions and payouts</li>



<li>1099-S for reporting payments for real estate transactions</li>



<li>1099-G for reporting tax refunds and unemployment benefits</li>
</ul>



<h2 class="wp-block-heading">Steps needed to take before issuing 1099’s</h2>



<p>To generate a 1099, you will need your contractor’s details. These details include:&nbsp;</p>



<ul>
<li>Home address</li>



<li>Taxpayer identification number</li>



<li>Reconciled income payments</li>
</ul>



<p>You can find this information via a contractor’s W-9, which you should request from every non-salaried worker.&nbsp;</p>



<p>With the vital information the W-9 captures, you can provide a 1099 to your contractor. We recommend issuing a W-9 to all contractors as they begin providing their services to your small business. That way, you will always have their information on file.&nbsp;</p>



<h2 class="wp-block-heading">What’s the Deadline to Issue 1099 Forms as a Small Business?</h2>



<p>The deadline for filing 1099 forms for your contractors is January 31, 2023.&nbsp;</p>



<h2 class="wp-block-heading">1099 FAQs</h2>



<h3 class="wp-block-heading">What’s the minimum amount of money required to issue a 1099? Who qualifies for a 1099?</h3>



<p>If you’ve paid a contractor over $600 within a calendar year, you should issue a 1099 form to them. If you paid them less than $600, you do not need to provide a 1099 form to that worker.</p>



<h3 class="wp-block-heading">Is a 1099 required for someone you paid in cash?</h3>



<p>Many small business 1099 requirements exist, but payment type does not matter. If your 1099 worker was paid $600 or more within a calendar year, they should receive a 1099 form. Whether the payments were made in cash, check, or via credit card, payment does not matter.</p>



<h3 class="wp-block-heading">What’s the penalty for not issuing a 1099?</h3>



<p>The penalty for failing to issue a 1099 is $250 per violation.</p>



<h3 class="wp-block-heading">Do I have to issue a 1099?</h3>



<p>You must issue them if your contract workers qualify for a 1099 form. The deadline in 2023 is January 31, and you will be penalized $250 per worker.&nbsp;</p>



<h3 class="wp-block-heading">When do I have to issue a 1099 form?</h3>



<p>The deadline for issuing 1099 forms is January 31st of each year. A copy of the form must also be filed with the IRS by that date. If you fail to issue a required 1099, you may be subject to penalties from the IRS.</p>



<h3 class="wp-block-heading">What’s the difference between 1099-NEC and 1099-MISC?</h3>



<p>The IRS uses the 1099-MISC and 1099-NEC to report non-employee taxable payments. The 1099-MISC is used to report payments not subject to self-employment tax. Form 1099-NEC is for reporting non-employee compensation, usually subject to self-employment tax.</p>



<h3 class="wp-block-heading">Does an employer have to provide 1099?</h3>



<p>The 1099 form reports non-employment income to the Internal Revenue Service (IRS). Businesses must issue a 1099 form to a taxpayer (other than a corporation) who has received at least $600 or more in non-employment income during the tax year.</p>



<h3 class="wp-block-heading">What’s the minimum amount of money required to issue a 1099? Who qualifies for a 1099?</h3>



<p>Businesses must issue a 1099 form to a taxpayer (other than a corporation) who has received at least $600 or more in non-employment income during the tax year.</p>



<h3 class="wp-block-heading">When do I have to issue a 1099 form?</h3>



<p>Beginning in tax year 2020, businesses will complete a 1099-NEC, or Nonemployee Compensation, to report nonemployee payments of $600 or more. The 1099-NEC form has replaced what used to be recorded on Form 1099-MISC, Box 7.</p>



<p>You must complete and send a 1099-NEC form to any independent contractors or businesses to whom you paid $600 or more in fees, commissions, prizes, awards, or other forms of compensation for services performed for your business.</p>



<h2 class="wp-block-heading">Work with accountants who specialize in 1099 forms fpr Small Businesses</h2>



<p>1-800Accountant offers a robust suite of financial services perfect for small businesses with 1099 employees. Our services include <a class="link" href="https://1800accountant.com/services/small-business-taxes">small business taxes and advisory</a>, <a class="link" href="https://1800accountant.com/services/entity-formation">entity formation</a>, <a class="link" href="https://1800accountant.com/services/bookkeeping">bookkeeping</a>, and <a class="link" href="https://1800accountant.com/services/payroll">payroll</a>, which allows you to focus your time and energy on growing your business. At the same time, we handle your 1099s and the rest. We also regularly <a class="link" href="https://1800accountant.com/blog/bookkeeping-for-independent-contractors-6-tips-to-keep-in-mind">produce content</a> designed to <a class="link" href="https://1800accountant.com/blog/proscons-entity-formation-independent-contractors">help and guide</a> your 1099 workers. Our dedicated virtual accounting and tax specialists offer guidance on tax returns, tax due dates, federal income tax, and all tax filing requirements.</p>

<p>As a small business owner, you’ve got a lot of responsibilities. You’re busy running your business, ensuring happy customers, and managing employees. The more you expand, the more you’ll have to do, primarily if you use contractors. We break down the complexities of tax forms, IRS forms and information returns, specifically the 1099-MISC and the […]</p>

Smartphone displaying a guide on "how to issue a 1099 form" laid on top of a 1099 tax form on a wooden table.

How-to-Issue-1099-Form

How to Issue a 1099 Form as a Small Business

<p>It’s true what they say: everything is bigger in Texas. That also applies to your tax burden if you don’t understand how to navigate the Lone Star State’s unique tax laws and regulations. While Texas business taxes can seem daunting, having an expert tax professional in your corner can provide tips to survive the upcoming tax season.&nbsp;</p><p>If you own a Texas business or want to learn how to start a business in Texas, use this blog as your ultimate guide to small business taxes in Texas. We break down sales tax rates, tax deadlines, franchise tax, and other integral components of tax season that you need to know to file for your small business in Texas. Following this guide will ensure you’re on top of things to keep your business running smoothly and have everything you need to file correctly, on time, and comply.&nbsp;</p><h2 class="wp-block-heading">What to Know About Small Business Taxes in Texas</h2><p>Texas small business taxes differ from most states and impact various entities in various ways. Understanding the strengths and weaknesses of each will give you a better understanding of what you will be facing as you operate your small business in Texas. We’ll cover tax rate, income tax, deduction limit, thresholds, and more to help prepare your business for the upcoming tax season.&nbsp;&nbsp;&nbsp;</p><h2 class="wp-block-heading">Texas Franchise Tax</h2><p>Texas charges small business taxes as franchise taxes. This tax is unique because it differs from a corporate income tax. Small businesses below a certain amount of income pay no franchise taxes, which is $1,230,000 for 2022-2023.</p><h2 class="wp-block-heading">Franchise Tax Maximum&nbsp;</h2><p>Another unique aspect of the franchise tax rate is a maximum amount of 1% for all business entities in the state. The tax rate can decrease depending on the amount a small business earns.&nbsp;&nbsp;</p><h2 class="wp-block-heading">Texas Nexus</h2><p>Nexus is essential in determining if a small business in Texas must pay a franchise tax. Businesses have a <a class="link" href="https://www.investopedia.com/terms/s/salestax.asp">nexus</a> if there’s a physical presence within the state. The state of Texas imposes the nexus the earliest of:</p><ul><li>January 1, 2019, if the entity obtained a use tax permit before that date</li><li>The date the entity has a physical presence</li><li>The date the entity obtains a Texas tax permit if obtained on or after January 1, 2019</li><li>On the first day of the federal income tax accounting period, the taxable entity had gross receipts from business in Texas of $500,000 or more.</li></ul><p>If your small business has nexus in the state of Texas, you’ll need to file two reports:&nbsp;</p><ul><li>Franchise Tax Report: EZ Computation, Long Form, or No Tax Due form</li><li>Information Report: Ownership Information Report or Public Information Report</li></ul><p>Finally, business entities, owners, and shareholders won’t worry about Texas’s state income tax. Texas is one of seven states that doesn’t charge <a class="link" href="https://www.thebalance.com/state-income-tax-rates-3193320#:~:text=Overall%2C%20state%20tax%20rates%20range%20from%200%25%20to,same%20percentage%20regardless%20of%20how%20much%20they%20earn.">state income tax</a>.</p><h2 class="wp-block-heading">Texas Sales Tax</h2><p>There’s a 6.25% Texas state sales and use tax on all retail sales, leases, and rentals of most goods, as well as specific services that are taxable. Local jurisdictions can add up to a 2% sales and use tax for a maximum combined rate of 8.25%.<br /><br />If you run a Texas business, sell or lease tangible personal property, or sell taxable services, you must apply for a tax registration permit. Successful applicants receive their permits in 2-3 weeks. You may use it via <a class="link" href="https://security.app.cpa.state.tx.us/">Texas’s eSystem</a>.<br /><br />You must also collect and report your earnings, which are determined by the amount of taxes you paid in the preceding state fiscal year (Sept. 1 – Aug. 31). There are four tiers:&nbsp;</p><ul><li>Less than $10,000</li><li>$10,000 – $49,999</li><li>$50,000 – $499,999</li><li>$500,000 or more</li></ul><p>Use <a class="link" href="https://comptroller.texas.gov/taxes/sales/filing-requirements.php">this page</a> to find the reporting and payment methods to use.<br /><br />You will be notified by letter after your application for a sales tax permit has been approved whether you will file monthly or quarterly taxes. If a due date falls on a Saturday, Sunday, or legal holiday, the next working day is the due date.</p><h2 class="wp-block-heading">Texas Business Taxes</h2><p>From sales tax to payroll taxes, income tax, tax rates, deadlines, and more, businesses must understand what forms they are responsible for submitting, how they affect the business, and what deadlines are imperative to meeting. Below, you will find a breakdown of the different business taxes in Texas, including sales tax, payroll tax, C corp, S corp, LLC, partnership, and sole proprietorship.&nbsp;</p><h3 class="wp-block-heading">Texas Sales Tax</h3><p>Sales tax varies state by state, all within different parameters. Texas imposes a 6.25 percent state sales and use tax on all retail sales, leases, and rentals of taxable services and most goods. Local taxing jurisdictions can also impose up to 2 percent sales and use tax for a maximum combined rate of 8.25 percent.&nbsp;</p><h3 class="wp-block-heading">Texas Payroll Taxes</h3><p>Texas has no income tax, but there are other payroll taxes you are responsible for, such as the quarterly state unemployment insurance tax. Small businesses can transmit this reporting online.&nbsp;</p><h3 class="wp-block-heading">C Corp Taxes in Texas&nbsp;</h3><p>If your business operates as a <a class="link" href="https://1800accountant.com/blog/form-c-corp">C corp,</a> there are a few things to remember. C corps will pay the franchise tax, and their shareholders will also <a class="link" href="https://www.investopedia.com/terms/c/c-corporation.asp#:~:text=A%20C%20corporation%20%28or%20C-corp%29%20is%20a%20legal,corporations%2C%20are%20also%20subject%20to%20corporate%20income%20taxation.">pay federal taxes</a> on their individual income.</p><p>The EZ Computation Rate and No Tax Due Threshold rates apply to C corps and all business entities.&nbsp;</p><h3 class="wp-block-heading">S Corp Taxes in Texas</h3><p>If you want to know <a class="link" href="https://1800accountant.com/blog/7-steps-to-start-an-s-corp-in-texas">how to set up an S-Corp in Texas</a>, you should understand the taxes they must pay. In Texas,<a class="link" href="https://1800accountant.com/blog/business-entity-s-corp"> S corps</a> are subject to the franchise tax. An S corporation is a pass-through entity, meaning shareholders won’t pay franchise taxes individually, and they don’t pay state taxes for their share of the corporation’s income.</p><p>As long as the revenue from S corps remains within the No Tax Due threshold, an S corporation won’t pay taxes in Texas.</p><h3 class="wp-block-heading">LLC Taxes in Texas</h3><p>To know <a class="link" href="https://1800accountant.com/blog/start-llc-texas">how to make an LLC in Texas</a>, you must pay the necessary taxes. An <a class="link" href="https://1800accountant.com/blog/business-entity-llc" target="_self">LLC</a> in Texas must pay a franchise tax, even though LLCs are pass-through entities. Members and owners of LLCs won’t pay state income tax for their personal income.</p><p>If you operate a single-member LLC, you must also file and pay a franchise tax.</p><h3 class="wp-block-heading">Partnership Taxes in Texas</h3><p>If you operate your small business as a <a class="link" href="https://1800accountant.com/blog/business-entity-partnership">partnership</a> in Texas, the state requires you to pay a franchise tax. This includes partnerships that are limited partnerships or limited liability partnerships.&nbsp;</p><h3 class="wp-block-heading">Sole Proprietorship Taxes in Texas</h3><p>There’s no requirement for <a class="link" href="https://1800accountant.com/blog/business-entity-sole-proprietorship">sole proprietorships</a> to file or pay franchise tax in Texas. Instead, sole proprietors will pay their individual federal income tax.</p><p>The structure of partnerships and sole proprietorships may need clarification with taxes in Texas—businesses owned by individuals that direct business income to the same individuals won’t pay the franchise tax.&nbsp;</p><h2 class="wp-block-heading">Tax Rates, Deduction Limits, and Tax Thresholds in Texas</h2><p>Franchise tax rates, deduction limits, and tax thresholds vary by report year. Here is a breakdown for 2022 and 2023.&nbsp;</p><ul><li>No Tax Due Threshold - $1,230,000</li><li>Tax Rate - (retail or wholesale) 0.375%</li><li>Tax Rate - (other than retail or wholesale) 0.75%</li><li>Compensation Deduction Limit - $400,000</li></ul><h2 class="wp-block-heading">Tax Due Dates in Texas</h2><p>One of the most vital things business owners need to know to prepare for tax season is the relevant due dates for essential reports, especially the franchise reports shown below. The Annual Franchise Tax Report and Final Franchise Report are due May 15th. If May 15 falls on a weekend or holiday, the due date will be the next business day.</p><ul><li>Annual Franchise Tax Report - Final Franchise Tax Reports - May 15th</li></ul><h2 class="wp-block-heading">Work with Texas Tax Experts for Business Tax Solutions</h2><p>Texas small business taxes can be intimidating. It can also be challenging to hit tax deadlines and remain compliant, which is why so many small businesses in Texas work with 1-800Accountant, America’s leading virtual accounting firm.</p><p>An expert tax specialist can help small business owners navigate their unique challenges when filing taxes while providing insight into income tax, franchise tax, deadlines, and other frequently asked questions.&nbsp;Whether it’s <a class="link" href="https://1800accountant.com/services/entity-formation">entity formation</a>, <a class="link" href="https://1800accountant.com/services/small-business-taxes">small business taxes</a>, or any of our professional business services, we have the solution you need at a price that works for you. Schedule a quick consultation – usually 30 minutes or less – to learn how we can help.</p>

It’s true what they say: everything is bigger in Texas. That also applies to your tax burden if you don’t understand how to navigate the Lone Star State’s unique tax laws and regulations. While Texas business taxes can seem daunting, having an expert tax professional in your corner can provide tips to survive the upcoming [&hellip;]

Banner over blurred street scene reading "navigating small business taxes in texas" with directional arrow symbol.

navigating-small-business-taxes-in-texas

Navigating Small Business Taxes in Texas

<p>Operating a small business often involves navigating a critical, yet time-consuming element – payroll, especially if you have employees who expect to receive their paychecks on time. Payroll essentially determines how you and your staff get paid. There are strategies available to improve running payroll, such as using payroll software to eliminate manual processes, that can simplify your overall payroll process.</p>



<p>Here are five helpful tips to enhance efficiency in your payroll system.</p>



<h2 class="wp-block-heading">Tips To Make Payroll Management More Efficient for Small Business Owners</h2>



<p>As a small business owner, you can <a class="link" href="https://www.netsuite.com/portal/resource/articles/accounting/payroll-tips.shtml" target="_blank" rel="noreferrer noopener">streamline your payroll</a> system to make it more efficient. You can do so in the following ways:</p>



<ul>
<li>Accurately classify your workers as an employee or independent contractors in your payroll system.</li>



<li>Automate taxes using payroll software or by outsourcing your payroll management.&nbsp;</li>



<li>Decide whether your pay for employees will be hourly or as a salary.</li>



<li>Double-check your data entries to avoid payroll errors and misclassification.</li>



<li>Streamline similar processes with payroll.</li>
</ul>



<h2 class="wp-block-heading">1. Use Direct Deposit When Possible</h2>



<p>The first tip to make payroll more efficient is to <a class="link" href="https://www.thebalance.com/how-to-set-up-direct-deposit-315294" target="_blank" rel="noreferrer noopener">use direct deposit</a>. Direct deposit allows small businesses to send electronic payments from one bank account to another. </p>



<p>Banks use the Automated Clearing House (ACH) network, which lets one financial institution send payments to another. There are several reasons to consider using direct deposit:</p>



<ul>
<li>Direct deposits offer more convenience.</li>



<li>Direct deposits are more secure and take less time to process than checks.</li>



<li>You won’t need to print checks or pay to mail checks.&nbsp;&nbsp;</li>
</ul>



<h2 class="wp-block-heading">2. Establish a Payroll Calendar And Stick To It</h2>



<p>The second tip to make processing payroll more efficient is to establish <a class="link" href="https://www.nerdwallet.com/article/small-business/what-is-a-payroll-schedule-how-to-choose-one" target="_blank" rel="noreferrer noopener">a payroll calendar</a>. This calendar will determine how often your employees will receive payment, and it’s usually one of the first things you’ll figure out as a small business owner. </p>



<p>There are three reasons ‌you should establish a payroll calendar:&nbsp;</p>



<ul>
<li>A payroll calendar will help your small business meet labor market expectations.&nbsp;</li>



<li>Establishing a payroll calendar will also help your small business determine its cash flow.&nbsp;</li>



<li>Payroll calendars ensure your employees or workers receive payment for the required minimum of times per month.&nbsp;</li>
</ul>



<p>There are four payment schedules you should base your payroll calendar on. Depending on how you plan your workers to work, one or more payment schedules may work for you:</p>



<ul>
<li>Weekly&nbsp;</li>



<li>Biweekly&nbsp;</li>



<li>Semimonthly</li>



<li>Monthly</li>
</ul>



<p>The first payroll calendar format can occur weekly. This will result in 52 payments to employees on the same day of each week throughout the year.&nbsp;</p>



<p>You may choose a weekly payroll schedule if your small business relies on manual labor, a retail store, or a restaurant. You may also choose a weekly payroll schedule if most of your employees are hourly workers.&nbsp;</p>



<p>The second payroll calendar format you can choose from is biweekly. This will result in employees receiving payment every two weeks. As with the weekly pay period, employees will receive payment on the same day for each payment.</p>



<p>You may choose a biweekly payroll schedule if your small business has both hourly and salaried employees. This option can also work if employees need to take time off throughout the year.&nbsp;</p>



<p>The third payroll calendar format can occur semimonthly. With this payment option, employees will receive payment twice per month or 24 times per year. Employees will receive payment either on the first and 15th of each month or the 15th and the end of the month.</p>



<p>Semimonthly payroll payments can work for employers who would like stable payroll throughout the year. This payroll option also works best for some employees who can use a semimonthly payroll structure to plan their expenses.&nbsp;</p>



<p>The fourth payroll calendar format you can choose from is monthly. This is a rare payment structure, and it may not work for some states requiring workers to receive more than one payment monthly.</p>



<p>A monthly payroll structure works best if you’re the only employee of a business. This option can also work for employees who receive payment as a commission.</p>



<h2 class="wp-block-heading">3. Provide E-Pay Stubs</h2>



<p>Another way to make the payroll process more efficient is to <a class="link" href="https://moneyminiblog.com/business/electronic-pay-stubs/" target="_blank" rel="noreferrer noopener">provide e-pay stubs</a>. E-pay stubs list salary and tax information, like paper stubs. It will also list federal and state taxes paid throughout the year and at the time of payment.</p>



<p>Employees and workers can access their e-pay stubs in their employee accounts. As a small business owner, you can create e-pay stubs and enter the data. Another option small business owners have with e-pay stubs is to outsource payroll for similar results.&nbsp;</p>



<h2 class="wp-block-heading">4. Make the Payroll Process More Efficient by Outsourcing It</h2>



<p>Consider <a class="link" href="https://1800accountant.com/services/payroll">outsourcing your payroll</a>. Outsourcing payroll can be beneficial for almost any small business owner.&nbsp;</p>



<p>A payroll expert can help you and your small business with upfront pricing, which can save you both money and time. Outsourcing payroll will also ensure you’ll have all of your payroll needs taken care of no matter how you structure your payroll. This can also ensure you avoid making any <a class="link" href="https://1800accountant.com/blog/common-payroll-mistakes">costly payroll mistakes</a>.</p>



<h2 class="wp-block-heading">5. Keep Policies Clear And Simple</h2>



<p>The last tip to make payroll more efficient is to keep policies clear and simple. Payroll has intricacies beyond payment for your employees and workers. Businesses may have attendance, benefits, and paid vacation to work through in the middle of paying other employees.&nbsp;</p>



<p>To avoid any issues with your payroll, you’ll want to establish clear guidelines and policies. You can do this by creating a payroll policy document and updating it as needed, so your employees can access it whenever they need to.&nbsp;</p>



<h2 class="wp-block-heading">Work With Us for Your Payroll Needs</h2>



<p>"With tens of thousands of tax jurisdictions and 16,000+ tax rules that impact withholding (and can change year-to-year!), payroll compliance can quickly get very complex for a small business owner. 1-800Accountant has combined the expertise and scale of Gusto as an established payroll and HR provider with the knowledgeable advice only dedicated advisors can provide. Together that creates a powerful solution offering payroll peace of mind," said Yi Liu, General Manager, Embedded Payroll, Gusto.<br><br>The payroll process is one of the most vital needs of any business. For businesses of all sizes, outsourcing payroll can be beneficial. Work with the professionals at <a class="link" href="https://1800accountant.com/">1-800Accountant</a> for help with your small business payroll needs.<br><br>Check out this comprehensive guide to learn <a class="link" href="https://1800accountant.com/blog/payroll-tax-return">everything you need to know about payroll taxes</a>.</p>

Operating a small business often involves navigating a critical, yet time-consuming element – payroll, especially if you have employees who expect to receive their paychecks on time. Payroll essentially determines how you and your staff get paid. There are strategies available to improve running payroll, such as using payroll software to eliminate manual processes, that [&hellip;]

make-payroll-more-efficient_blog-header

5 Tips to Make Payroll More Efficient

<p>As a business owner, you know first-hand that running and growing your company is a daily challenge. The same thing can be said about your tax situation.</p>



<p>This article gives a brief overview of the primary types of business taxes you’ll likely encounter as a business owner: Income taxes, self-employment taxes, payroll taxes, and excise &amp; sales taxes.</p>



<h2 class="wp-block-heading">Why Understanding Business Taxes is Important</h2>



<p>All businesses need cash to survive. If you fall behind paying your business’s taxes, you’ll need to divert a lot of this cash to get current on your tax obligation. And much of this cash was supposed to be used to sustain the business’s day-to-day operations.</p>



<p>This is why understanding business taxes and <a class="link" href="https://1800accountant.com/blog/calculate-small-business-taxes">how to calculate them</a> is so important - failing to pay business taxes can potentially cause your company to go <a class="link" href="https://1800accountant.com/blog/what-happens-if-you-dont-file-taxes"><em>out of business</em></a>!</p>



<p>With that said, let’s take a look at the primary types of business taxes.</p>



<h2 class="wp-block-heading">Business Tax #1: Income Taxes</h2>



<p><strong><em>Definition:</em></strong> Taxes paid on your business’s profit after all business expenses are paid and qualifying individual income tax deductions are applied.</p>



<p><strong><em>Filing your income taxes:</em></strong> Sole proprietors, shareholders of S corporations, partners of a partnership, and members of limited liability companies report their business’s taxable income on their <a class="link" href="https://1800accountant.com/services/income-taxes">individual tax return (Form 1040)</a>. Shareholders of C corporations only pay income taxes on wages or dividends they receive, not their business’s entire taxable income.</p>



<p>In addition to federal income taxes, don’t forget about state and local income taxes if applicable.</p>



<p><strong><em>Tax rate:</em></strong> Federal income tax rates can be as high as 37%. Higher incomes may also be subject to a 0.9% surtax.</p>



<p><strong><em>Tax planning tip:</em></strong> To minimize income taxes, you’ll want to reduce your business’s net profit. To lower your business’s taxable income, consider purchasing a major piece of equipment or asking a customer to postpone an end-of-the-year payment to the following year. Certain individual deductions can also reduce your business’s net profit, such as qualified contributions to a retirement account, the standard deduction, or itemized deductions.</p>



<h2 class="wp-block-heading">Business Tax #2: Self-Employment Taxes</h2>



<p><strong><em>Definition:</em></strong> Taxes paid on your business’s profit after all business expenses are paid <a class="link" href="https://www.ssa.gov/pubs/EN-05-10022.pdf" target="_blank" rel="noreferrer noopener">is  self-employment tax</a>. Government revenue generated from self-employment taxes goes to fund Social Security and Medicare. Unlike income taxes, you can’t use the standard or itemized deductions to reduce your taxable income subject to self-employment taxes.</p>



<p><strong><em>Filing your self-employment taxes:</em></strong> Fill out Form SE and attach it to your individual tax return (Form 1040).</p>



<p><strong><em>Tax rate:</em></strong> 12.4% for Social Security taxes is due on your first $160,200 of taxable income, and 2.9% for Medicare taxes on all your taxable income, for a total of 15.3%.</p>



<p><strong><em>Tax planning tip:</em></strong> Consider becoming an S corporation. As an S corp shareholder, you’ll only pay self-employment taxes on the wages you pay yourself from the business. The remaining profits from the S corporation are not subject to self-employment taxes.</p>



<h2 class="wp-block-heading">Business Tax #3: Capital Gains Taxes</h2>



<p><strong><em>Definition:</em></strong> When you sell an asset for more than what you originally paid for that asset, you have to pay capital gains taxes.</p>



<p><strong><em>Filing your capital gains taxes:</em></strong> When you sell a business asset such as a vehicle, equipment, or a building, you must report this transaction on Form 4797 and attach it to your Form 1040.</p>



<p><strong><em>Tax rate:</em></strong> If you owned the recently sold business asset for more than 12 months, the maximum tax rate you’ll pay is 20%. If you owned the asset for less than 12 months, the tax rate can be as high as 37%.</p>



<p><strong><em>Tax planning tip:</em></strong> Consider having the party who bought your asset pay in installments. Instead of receiving one large lump sum of money all at once, spreading payments across several years can also help spread out the taxes you owe over the same number of years.</p>



<h2 class="wp-block-heading">Business Tax #4: Payroll Taxes</h2>



<p><strong><em>Definition:</em></strong> Payroll taxes are taxes paid on the wages and salaries of employees. Similar to self-employment taxes, <a class="link" href="https://www.cbpp.org/research/federal-tax/federal-payroll-taxes" target="_blank" rel="noreferrer noopener">payroll taxes are used to fund Social Security and Medicare</a>. A state’s unemployment tax, which covers that state’s unemployment compensation fund, is also considered a payroll tax and is paid by the employer. However, several states require some contribution from employees. The federal unemployment tax is paid only by the employer.</p>



<p><strong><em>Filing your payroll taxes:</em></strong> Here’s a quick look at the various forms used to file payroll taxes:</p>



<ul>
<li><em>Form 940 -</em> Federal unemployment tax return, filed annually (there’s also a corresponding state unemployment tax return)</li>



<li><em>Form 941 -</em> Tax return to report income, Social Security, and Medicare taxes withheld from employees’ paychecks and filed quarterly.</li>



<li><em>Form W-2 -</em> The information report provided to employees that shows total wages earned for a particular year</li>



<li><em>Form W-3 -</em> Information report filed with the Social Security Administration summarizes all W-2s issued by an employer. Copies of all W-2s are also included with the W-3.</li>
</ul>



<p><strong><em>Tax rate:</em></strong> Similar to the self-employment tax, 12.4% of employees’ wages are taxed to fund Social Security, while 2.9% of wages are taxed to fund Medicare, for a total tax rate of 15.3%. The employer pays half of these taxes (7.65%), while the employee pays the other half (7.65%).</p>



<p><strong><em>Tax planning tip:</em></strong> Many employers take the 7.65% payroll taxes they are responsible for paying and bake it into an employee’s overall compensation package. So, while technically responsible for paying its 7.65% of payroll taxes, the employer passed this cost to the employee.</p>



<h2 class="wp-block-heading">Business Tax #5: Excise &amp; Sales Taxes</h2>



<p><strong><em>Definition:</em></strong> Sales taxes are normally collected as a percentage of the overall selling price of goods or services, such as an 8% sales tax on all clothing, while excise taxes are imposed on very specific goods and services, such as a $2 excise tax on a 20-pack of cigarettes.</p>



<p><strong><em>Filing your excise and sales taxes:</em></strong> <a class="link" href="https://www.taxpolicycenter.org/briefing-book/what-are-major-federal-excise-taxes-and-how-much-money-do-they-raise" target="_blank" rel="noreferrer noopener">Federal excise taxes</a> are filed quarterly using Form 720. State filing requirements for sales taxes can vary depending on the amount of tax you owe. Businesses that collect a high amount of sales tax must usually file a return once a month; a business that collects a small amount of sales tax may only need to file an annual return.</p>



<p><strong><em>Tax rate:</em></strong> Check with your state or local tax authority <a class="link" href="https://taxfoundation.org/data/all/state/2023-sales-tax-rates-midyear/" target="_blank" rel="noreferrer noopener">to determine your sales tax rate</a>. Federal excise rates also vary depending on the product being taxed.</p>



<p><strong><em>Tax planning tip:</em></strong> While businesses are responsible for paying sales and excise taxes, many pass this cost to their customers.</p>



<h2 class="wp-block-heading">Partner With a Tax Expert to Ensure Business Success</h2>



<p>As you can see, you need to understand many types of business taxes if you want to comply with all of your tax obligations.</p>



<p>The good news is that while many of these taxes can be extremely complicated, help is only a phone call or email away.</p>



<p>Partner with a 1-800Accountant <a class="link" href="https://1800accountant.com/services/small-business-taxes">small business tax expert</a> to stay compliant while minimizing the total amount of taxes you owe.</p>

As a business owner, you know first-hand that running and growing your company is a daily challenge. The same thing can be said about your tax situation. This article gives a brief overview of the primary types of business taxes you’ll likely encounter as a business owner: Income taxes, self-employment taxes, payroll taxes, and excise [&hellip;]

types-of-taxes-for-small-businesses_blog-header

The Primary Types of Business Taxes

<p>The legal entity type you select will have significant tax implications for you and your small business. That's why it's so important to understand the strengths and weaknesses of each entity before making a selection.<br><br>In this blog, we'll tell you everything you need to know about C corporations, including what it is, the steps you would take to form a C corp, the benefits of that entity type for your small business, potential downsides, and more.&nbsp;</p>



<h2 class="wp-block-heading">What is a C Corporation?</h2>



<p>You may have heard of partnerships or a limited liability company and their tax advantages, but a C corp is a different type of corporation.<br><br>A C corporation is a type of corporate structure taxed separately from its owners and shareholders. While other entities, such as S corporation, share similarities, there are some key differences between the two entities.<br><br>S corporation or C corporation business structure? Here are the differences, including the taxation of a C corporation, that you should know about when evaluating a <a class="link" href="https://1800accountant.com/blog/s-corp-vs-c-corp">C corp vs. S corp</a>:&nbsp;</p>



<ul>
<li>C corp taxes are applied at both the corporate income tax and personal income tax levels, called double taxation, while S corporations pay taxes at an individual level.</li>



<li>C corporations must issue stock and can have an infinite number of shareholders. S corporations are limited to 100 stockholders.</li>



<li>C corporations are required to make quarterly estimated income tax payments, while S corporations only do it once a year.</li>



<li>Unlike S corporations, owners and shareholders of C corporations do not have to be U.S. citizens or residents. Other businesses rather than individuals can own C corporations.</li>



<li>As a C corporation, there’s no deduction for corporate losses, so shareholders cannot deduct losses on their personal tax returns.</li>
</ul>



<h2 class="wp-block-heading">How to Form a C Corporation&nbsp;</h2>



<p>The steps you'll take for forming your business as a C corporation are reasonably straightforward and similar to the formation process for other entities.</p>



<ol>
<li><strong>Select a business name.</strong> The name you select must be unique. You’ll want to check with your state and local business authorities to ensure no other company uses a similar or identical name.<br></li>



<li><strong>Articles of incorporation. </strong>You’ll need to develop your business's articles of incorporation and submit them to your Secretary of State to form your business legally. It's essential to include your unique business name, address, registered agent information, and details about the type of stock you'll be issuing.<br></li>



<li><strong>Stock.</strong> The stock highlighted in your articles of incorporation is distributed to shareholders who comprise the ownership of your business.<br></li>



<li><a class="link" href="https://1800accountant.com/blog/ein"><strong>Employer Identification Number (EIN)</strong></a><strong>.</strong> An EIN, also known as a Federal Tax ID, is like a Social Security number for your business, which the IRS uses to identify you for tax purposes. If you intend to hire employees, open a business bank account, or file business taxes, you must obtain an EIN.<br></li>



<li><strong>Board of Directors.</strong> You must establish a board of directors who will oversee your C corporation's operations.&nbsp;</li>
</ol>



<h2 class="wp-block-heading">C Corporation Taxes</h2>



<p>C corporations are subject to double taxation at the corporate and individual levels. The current <a class="link" href="https://1800accountant.com/blog/corporate-tax-rates">corporate tax rate</a> is 28%. Here's what to know about the taxation of a C corporation.</p>



<p>To prepare your C corporation taxes, you must use <a class="link" href="https://1800accountant.com/blog/1120-tax-form">Form 1120</a> to report your business’s financial information, including taxable income, gains, losses, deductions, and credits. If your assets surpass $10 million and you file over 250 returns annually, you must file this form online.</p>



<p>C corporations must also pay employment taxes, which include FICA (Social Security and Medicare) and unemployment taxes. You must use Forms 940 and 941 to report these taxes.</p>



<p>Sections you'll need to complete in Form 1120:</p>



<ul>
<li>Basic Information About Your C corporation: This consists of your business’s legal name, address, EIN, date of incorporation, and total assets.</li>



<li>Corporate Income: This is your gross receipts or sales, returns and allowances, cost of goods sold, gross profit, dividends, interest, gross rents, gross royalties, and capital gains.</li>



<li>Tax-Deductible Expenses: These expenses include advertising, charitable contributions, repairs and maintenance, employee benefit programs, etc. You do not need to attach documentation, but keep your records in case of an IRS audit.</li>



<li>Tax, Refundable Credits, and Payments: This section aims to determine if you need to receive a tax refund or owe taxes to the IRS.</li>



<li>Schedule A – Cost of Goods Sold: If your business deducts the cost of goods from gross income, you must report this information in this section.</li>



<li>Schedule C – Dividends and Special Deductions: If dividends or special deductions have been claimed, you must record this information here.</li>



<li>Schedule E – Compensation of Officers: Document the compensation amounts of your corporate officers in this section.</li>



<li>Schedules J and K: These sections indicate your business's accounting method and information that can affect your corporate tax rate.</li>



<li>Schedules L, M-1, and M-2: In these sections, you need to attach your business’s balance sheet, document the reconciliation of income loss, and analyze unappropriated retained earnings.</li>
</ul>



<h2 class="wp-block-heading">Benefits of forming a C Corporation</h2>



<p>There are numerous advantages of a C corporation,&nbsp; including the following popular features.&nbsp;</p>



<h3 class="wp-block-heading">Limited liability protection&nbsp;</h3>



<p>C corporation shareholders/owners enjoy limited liability protection, which protects their personal assets. This means they aren't personally responsible for their C corporation's liabilities and debt.&nbsp;</p>



<h3 class="wp-block-heading">Unlimited number of shareholders</h3>



<p>Unlike S corporations, which must limit their shareholders, C corporations can offer shares to an unlimited number of shareholders, including both private individuals and public entities.&nbsp;</p>



<h3 class="wp-block-heading">Perpetual existence</h3>



<p>C corporations feature perpetual existence, meaning they will continue to exist even after ownership departs.&nbsp;</p>



<h3 class="wp-block-heading">Increased credibility&nbsp;</h3>



<p>C corporations often have greater credibility than other entities in the eyes of third parties, including suppliers, vendors, and potential investors.&nbsp;&nbsp;</p>



<h2 class="wp-block-heading">Potential downsides&nbsp;</h2>



<p>If your business would benefit from forming as a C corporation, there aren't many downsides. However, two issues often give prospective C corporation ownership pause.&nbsp;</p>



<ul>
<li>C corp double taxation. C corporations are subject to double taxation at the corporate and individual levels. This differs from other business entity types, where ownership is only taxed on the individual level.</li>
</ul>



<ul>
<li>Complex. It is much more challenging to run a C corporation than other entities. There are many more requirements to comply with as a C corporation, while entities such as sole proprietorships or single-owner LLCs are less formal.&nbsp;&nbsp;</li>
</ul>



<h2 class="wp-block-heading">Role of Shareholders, Directors, and Officers in a C Corporation</h2>



<p>While these roles are unique in certain ways, they might also intersect. For instance, a person appointed to a director role might also own shares in the corporation.<br><br>Shareholders are the owners of the corporation and appoint directors. Directors are typically appointed to oversee management and will appoint officers. Officers are usually involved in the day-to-day happenings of the corporation.&nbsp;</p>



<h2 class="wp-block-heading">Partner with C Corporation Experts to ensure a path to success</h2>



<p>Complying with the various C corp requirements can be difficult. That's why so many small business owners and entrepreneurs trust 1-800Accountant, America's leading virtual accounting firm for small businesses, for their corporate needs.<br><br>Whether it's <a class="link" href="https://1800accountant.com/services/entity-formation">C corp formation</a>, <a class="link" href="https://1800accountant.com/services/business-tax-advisory">tax advisory</a>, or any of our professional accounting services, we have the affordable solution you need to help your C corporation stay compliant. Schedule a quick consultation – usually 30 minutes or less – to learn how we can help.&nbsp;</p>

The legal entity type you select will have significant tax implications for you and your small business. That&#8217;s why it&#8217;s so important to understand the strengths and weaknesses of each entity before making a selection. In this blog, we&#8217;ll tell you everything you need to know about C corporations, including what it is, the steps [&hellip;]

everything-you-need-to-know-about-a-c-corporation_blog-header

Everything You Need to Know About Your C Corporation

<p>You may be wondering: "Why create a chart of accounts?"<br><br>Even a basic chart of accounts is an excellent way to view your <a class="link" href="https://1800accountant.com/blog/bookkeeping-101-keep-good-financial-records">business's finances</a>. The purpose of a chart of accounts is to aid in decision-making for your small business by tracking transactions and organizing the results in an easily digestible format.<br><br>In this blog, we'll go into detail about what a chart of accounts is, how to create one for your business, critical real-world examples, and other helpful information that provides you with a comprehensive picture. </p>



<h2 class="wp-block-heading">Understanding the small business chart of accounts</h2>



<h3 class="wp-block-heading">What is a chart of accounts?</h3>



<p>Your chart of accounts allows you to view multiple <a class="link" href="https://1800accountant.com/blog/common-bookkeeping-terms">financial transactions</a> along with a description, identification number, and name of each. You're able to view the chart of accounts categories within a general ledger, which includes:&nbsp;</p>



<ul>
<li>Assets</li>



<li>Liabilities</li>



<li>Shareholder’s equity</li>



<li>Revenue</li>



<li>Expenses</li>
</ul>



<h3 class="wp-block-heading">Main chart of accounts components</h3>



<p><strong>Assets</strong><br>What your business owns are called assets, and you'll track two types: current and noncurrent. The assets section in your chart of accounts will begin with the account number "1000."<br><br>Current assets include assets your business will use in the next year, such as:</p>



<ul>
<li>Accounts receivable&nbsp;</li>



<li>Cash</li>



<li>Inventory</li>



<li>Prepaid expenses</li>
</ul>



<p>Noncurrent assets or long-term assets are assets that will be used for longer than one year, including the following: </p>



<ul>
<li>Accumulated depreciation</li>



<li>Buildings</li>



<li>Furniture and fixtures</li>



<li>Leases&nbsp;</li>



<li>Plant and equipment</li>



<li>Vehicles</li>
</ul>



<p><strong>Liabilities</strong><br>Your business owes liabilities. This section begins with the account number "2000," and like your assets, you'll track both current and noncurrent liabilities.</p>



<p>Current liabilities, or short-term liabilities, include liabilities that your business will use next year. Current liabilities include:&nbsp;</p>



<ul>
<li>Loans and mortgages payable</li>



<li>Payroll taxes payable</li>



<li>Sales taxes payable</li>
</ul>



<p>Noncurrent liabilities or long-term liabilities are liabilities that will be used for longer than one year, including:&nbsp;</p>



<ul>
<li>Loans payable</li>



<li>Mortgages payable</li>
</ul>



<p><strong>Equity</strong><br>Equity refers to shareholder equity in your chart of accounts and will begin with the account number "3000." Common examples of equity found in your chart of accounts include: </p>



<ul>
<li>Common stock</li>



<li>Preferred stock</li>



<li>Retained earnings</li>
</ul>



<p><strong>Revenue</strong><br>Revenue is the income your business makes, primarily or secondarily. There are two revenue types that begin with the account number "4000" in your chart of accounts: operating revenue and non-operating revenue.</p>



<p>Operating income is the income that your business primarily makes. Non-operating revenue is revenue that your company makes indirectly. This form of revenue can come from:&nbsp;</p>



<ul>
<li>Asset write-downs</li>



<li>Dividend income&nbsp;</li>



<li>Foreign exchange gains or losses</li>



<li>Interest income</li>



<li>Profits or losses from investments</li>



<li>Rental income from property</li>
</ul>



<p><strong>Expenses</strong><br>There are two expense types: operating expenses and non-operating expenses, which will begin with the account number "5000."</p>



<p>Operating expenses are expenses that occur to cover operational costs. You may have expenses from the following:&nbsp;</p>



<ul>
<li>Equipment&nbsp;</li>



<li>Insurance</li>



<li>Inventory costs&nbsp;</li>



<li>Marketing</li>



<li>Payroll</li>



<li>Step costs</li>
</ul>



<p>Non-operating expenses are expenses unrelated to business operations. These include:&nbsp;</p>



<ul>
<li>Amortization&nbsp;</li>



<li>Depreciation</li>



<li>Interest charges</li>
</ul>



<h3 class="wp-block-heading">Importance of structure and organization&nbsp;</h3>



<p>There are two critical areas where your chart of accounts is vital for your business.<br><br><strong>1) Structure</strong>. How your chart of accounts is structured allows you to view all of your business's financial transactions based on the general ledger. This allows you to search transactions swiftly.<br><br><strong>2) Organization</strong>. A second benefit to the organization of a chart of accounts is that you can use this information for investment opportunities. This lets prospective investors or shareholders determine your business's financial health via the financial information provided. </p>



<h2 class="wp-block-heading">Components of a chart of accounts</h2>



<p>The information you record in your chart of accounts provides the data necessary to create your business's financial statements. All of your accounts will appear in these statements, with the chart of accounts determining which statement they should appear in. If your chart of accounts is outdated or incorrectly structured or organized, your statements won't be correct, either.<br><br>The financial statements include the following:&nbsp;</p>



<ul>
<li><strong>Income Statement</strong>. Also known as a profit and loss statement, this statement focuses on your business's revenue and expenses.&nbsp;</li>



<li><strong>Cash Flow Statement</strong>. This statement records the total cash from various sources, including petty cash, and cash going out of your business in support of your operations.&nbsp;</li>



<li><strong>Balance Sheet</strong>. This sheet records your business's assets, liabilities, shareholder equity, and debt.&nbsp;</li>
</ul>



<h2 class="wp-block-heading">How to create a chart of accounts</h2>



<p>To set up your chart of accounts, you'll create three columns to help you categorize: an Account Name, Type of Account, and Description.</p>



<ul>
<li><strong>Account Name</strong>. You’ll list your account names in this column.&nbsp;</li>



<li><strong>Type of Account</strong>. This column, to the right of Account Name, will list the account that you’re adding. You can select from an asset, cost of goods sold, equity, expense, income, or liability.</li>



<li><strong>Description. </strong>The final column, to the Type of Account's right, describes the transaction that occurred.&nbsp;</li>
</ul>



<h2 class="wp-block-heading">Real-world examples of standard chart of accounts</h2>



<p>Medical practice chart of accounts (chart of accounts example 1)</p>



<figure class="wp-block-table"><table><tbody><tr><td><strong>Account Type</strong></td><td><strong>Account Code</strong></td><td><strong>Account Name</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>1010</strong></td><td><strong>Cash - Operating Account</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>1020</strong></td><td><strong>Cash - Savings Account</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>1030</strong></td><td><strong>Medical Supplies Inventory</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>2010</strong></td><td><strong>Medical Equipment</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>2020</strong></td><td><strong>Office Furniture</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>2030</strong></td><td><strong>Accumulated Depreciation - Equipment</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>2040</strong></td><td><strong>Accumulated Depreciation - Furniture</strong></td></tr><tr><td><strong>Liabilities</strong></td><td><strong>3010</strong></td><td><strong>Accounts Payable</strong></td></tr><tr><td><strong>Liabilities</strong></td><td><strong>3020</strong></td><td><strong>Payroll Liabilities</strong></td></tr><tr><td><strong>Liabilities</strong></td><td><strong>3030</strong></td><td><strong>Unearned Revenue</strong></td></tr><tr><td><strong>Equity</strong></td><td><strong>4010</strong></td><td><strong>Owner's Capital</strong></td></tr><tr><td><strong>Equity</strong></td><td><strong>4020</strong></td><td><strong>Retained Earnings</strong></td></tr><tr><td><strong>Revenue</strong></td><td><strong>5010</strong></td><td><strong>Patient Service Revenue</strong></td></tr><tr><td><strong>Revenue</strong></td><td><strong>5020</strong></td><td><strong>Miscellaneous Revenue</strong></td></tr><tr><td><strong>Cost of Goods Sold</strong></td><td><strong>6010</strong></td><td><strong>Medical Supplies Expense</strong></td></tr><tr><td><strong>Expenses</strong></td><td><strong>7010</strong></td><td><strong>Salaries &amp; Wages</strong></td></tr><tr><td><strong>Expenses</strong></td><td><strong>7020</strong></td><td><strong>Rent or Mortgage Expenses</strong></td></tr><tr><td><strong>Expenses</strong></td><td><strong>7030</strong></td><td><strong>Utilities</strong></td></tr></tbody></table></figure>



<p>Restaurant chart of accounts (chart of accounts example 2)</p>



<figure class="wp-block-table"><table><tbody><tr><td><strong>Account Type</strong></td><td><strong>Account Code</strong></td><td><strong>Account Name</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>1010</strong></td><td><strong>Beverage Supply Inventory</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>1020</strong></td><td><strong>Food Supply Inventory</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>1030</strong></td><td><strong>Prepaid Expenses</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>2010</strong></td><td><strong>Kitchen Equipment</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>2020</strong></td><td><strong>Dining Furniture</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>2030</strong></td><td><strong>Accumulated Depreciation - Kitchen Equipment</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>2040</strong></td><td><strong>Accumulated Depreciation - Dining Furniture</strong></td></tr><tr><td><strong>Liabilities</strong></td><td><strong>3010</strong></td><td><strong>Accounts Payable</strong></td></tr><tr><td><strong>Liabilities</strong></td><td><strong>3020</strong></td><td><strong>Payroll Liabilities</strong></td></tr><tr><td><strong>Liabilities</strong></td><td><strong>3030</strong></td><td><strong>Loans</strong></td></tr><tr><td><strong>Equity</strong></td><td><strong>4010</strong></td><td><strong>Owner's Capital</strong></td></tr><tr><td><strong>Equity</strong></td><td><strong>4020</strong></td><td><strong>Retained Earnings</strong></td></tr><tr><td><strong>Revenue</strong></td><td><strong>5010</strong></td><td><strong>Dining Revenue</strong></td></tr><tr><td><strong>Revenue</strong></td><td><strong>5020</strong></td><td><strong>Miscellaneous Revenue</strong></td></tr><tr><td><strong>Cost of Goods Sold</strong></td><td><strong>6010</strong></td><td><strong>Food, beverage, and employee Expense</strong></td></tr><tr><td><strong>Expenses</strong></td><td><strong>7010</strong></td><td><strong>Salaries &amp; Wages</strong></td></tr><tr><td><strong>Expenses</strong></td><td><strong>7020</strong></td><td><strong>Insurance</strong></td></tr><tr><td><strong>Expenses</strong></td><td><strong>7030</strong></td><td><strong>Depreciation Expense</strong></td></tr></tbody></table></figure>



<h2 class="wp-block-heading">Maintaining and updating a chart of accounts</h2>



<p>You will make adjustments to your chart of accounts as time goes on. But before you start, here are a couple of things to keep in mind.&nbsp;</p>



<ul>
<li>First, if you want to add an account to your chart of accounts, you should do so before it becomes a problem. While you can add transactions at any point in the year, you don’t want to delay adding transactions and their accompanying information. If you wait, then you may need to adjust other entries in related categories or subcategories, causing more issues.</li>
</ul>



<ul>
<li>Second, if you add an account, it is helpful to designate a name for it. The name most commonly used for newly added accounts is Miscellaneous Expenses. You should use this name whether you have one uncategorized transaction out of the year or multiple uncategorized transactions.&nbsp;</li>
</ul>



<ul>
<li>Third, if you add a Miscellaneous Expense to your account, provide a more detailed explanation than usual. Even though you’ve already added a description, you want to explain how and why this expense differs. As you add accounts to this category, make adjustments as needed.</li>
</ul>



<ul>
<li>Finally, and most importantly, you shouldn’t delete any accounts until the end of the year. If you delete the accounts earlier, that can create additional disruptions.&nbsp;</li>
</ul>



<h2 class="wp-block-heading">Partner with professionals who understand the chart of accounts</h2>



<p>Financial data and financial reporting are an important addition to any small business and can be harvested from many areas, including the following: </p>



<ul>
<li>Expense accounts</li>



<li>Asset accounts</li>



<li>Balance sheet accounts</li>



<li>Equity accounts</li>



<li>Financial accounts</li>



<li>Liability accounts</li>



<li>Revenue accounts</li>



<li>Sub-accounts</li>
</ul>



<p>A chart of accounts isn't required, but the valuable insights it provides can contribute to critical data-backed decision-making for your small business. However, creating and managing a chart of accounts is often too much for many busy owners and entrepreneurs to handle, which is why so many of them trust 1-800Accountant, America's leading virtual accounting firm for small businesses, <a class="link" href="https://1800accountant.com/blog/outsourced-bookkeeping-guide">for their needs</a>.</p>



<p>Whether it's <a class="link" href="https://1800accountant.com/services/business-tax-advisory">tax advisory</a>, <a class="link" href="https://1800accountant.com/services/bookkeeping">bookkeeping for the chart of accounts</a>, robust <a class="link" href="https://1800accountant.com/blog/catch-up-bookkeeping">educational content</a>, or any of our professional accounting services, we have the solution you need at a price that fits within your budget. Schedule a quick consultation – usually 30 minutes or less – to learn how we can help.&nbsp;</p>

You may be wondering: &#8220;Why create a chart of accounts?&#8221; Even a basic chart of accounts is an excellent way to view your business&#8217;s finances. The purpose of a chart of accounts is to aid in decision-making for your small business by tracking transactions and organizing the results in an easily digestible format. In this [&hellip;]

chart-of-accounts-a-comprehensive-guide_blog-header

Chart of Accounts: A Comprehensive Guide with Real-World Examples

<p>Taxes can be a headache, especially when you’re unsure of the technical rules.&nbsp;</p>



<p>Section 179 allows taxpayers to take an immediate <a class="link" href="https://1800accountant.com/blog/tax-deductions-work">tax deduction</a> for property placed in service during the year instead of deducting the cost over several years.&nbsp;</p>



<p>This article will explain the Section 179 rules and help you understand how to take advantage of the tax deduction.&nbsp;</p>



<p>You’ll also get a step-by-step guide for compliance with Section 179 tax reporting requirements.&nbsp;</p>



<h2 class="wp-block-heading">What Is Section 179?</h2>



<p>Section 179, described in <a class="link" href="https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section179&amp;num=0&amp;edition=prelim" target="_blank" rel="noreferrer noopener">Internal Revenue Code Section 179</a>, is a tax depreciation deduction. Taxpayers can take the Section 179 tax deduction for business equipment purchases. The rules encourage business growth by incentivizing equipment purchases.</p>



<p>Eligible property should meet IRS requirements, which we’ll discuss next.&nbsp;</p>



<h2 class="wp-block-heading">Who Is Eligible for Section 179?</h2>



<p>The following business types may take the Section 179 tax deduction:&nbsp;</p>



<ul>
<li>C corporations<br></li>



<li>Partnerships<br></li>



<li>S corporations<br></li>



<li>Sole proprietorships&nbsp;</li>
</ul>



<p>Pass-through entities should report the Section 179 expense and pass the tax deduction on to the business owners. Trusts and estates are not eligible for the Section 179 deduction.&nbsp;</p>



<p><a class="link" href="https://1800accountant.com/services/small-business-taxes">Consult your tax professionals</a> to discuss which tax deductions your business can take.</p>



<h3 class="wp-block-heading">What Property Is Eligible for the Section 179 Tax Deduction?</h3>



<p>The IRS allows a deduction for various types of business property, including the following:&nbsp;</p>



<ul>
<li>Buildings<br></li>



<li>Machinery and equipment<br></li>



<li>Furniture<br></li>



<li>Vehicles<br></li>



<li>Off-the-shelf computer software<br></li>



<li>Patents and copyrights (restrictions apply)&nbsp;</li>
</ul>



<p>The following property is <em>not</em> eligible:&nbsp;</p>



<ul>
<li>Land<br></li>



<li>Section 197 intangibles<br></li>



<li>Custom software</li>
</ul>



<h2 class="wp-block-heading">How Does Section 179 Work?</h2>



<p>Your business may take a Section 179 deduction on its tax return for the same year it purchases eligible property.&nbsp;</p>



<p>Your business must actively use the property at least 50% of the time. For example, a new espresso machine for your coffee shop is likely eligible, while a new espresso machine for your home kitchen is not.&nbsp;</p>



<p>Your business is not required to deduct the entire cost of the property – you may choose to take a portion (or none) of the available deduction.&nbsp;</p>



<p>Why is Section 179 beneficial?&nbsp;</p>



<p>Traditional depreciation rules require taxpayers to deduct property costs over several years. In contrast, Section 179 allows taxpayers to deduct the cost of the property right away. Your business can benefit by aligning tax deductions (and lower taxable income) with equipment purchases.</p>



<h3 class="wp-block-heading">2023 Section 179 Limits</h3>



<p>The <a class="link" href="https://www.irs.gov/publications/p946#en_US_2022_publink1000107413" target="_blank" rel="noreferrer noopener">IRS imposes annual limitations</a> on each taxpayer’s Section 179 deduction. Consider the following rules to determine your Section 179 tax deduction for the year.</p>



<h4 class="wp-block-heading">The Dollar Limit and “Phase-Out” Threshold</h4>



<p>The tax year 2023 Section 179 dollar limit, or maximum deduction, is $1,160,000. <a class="link" href="https://1800accountant.com/blog/car-small-business-tax-deduction">Sport utility vehicles</a> have a $28,900 deduction limit.</p>



<p>The Section 179 dollar limit phases out for taxpayers who purchase eligible property totaling more than $2,890,000. Purchases above the threshold reduce the maximum deduction. The Section 179 dollar limit decreases to zero once equipment purchases total $4,050,000.</p>



<p>For example, imagine your business bought new office equipment totaling $3,500,000 in 2023. The maximum Section 179 deduction would be $550,000:&nbsp;</p>



<figure class="wp-block-table"><table><tbody><tr><td>Total eligible property purchased in 2023</td><td>$3,500,000</td></tr><tr><td>Less: 2023 IRS phase-out threshold</td><td>($2,890,000)</td></tr><tr><td>Excess of eligible purchases in 2023</td><td>$610,000</td></tr><tr><td></td><td></td></tr><tr><td>2023 IRS Section 179 dollar limit&nbsp;</td><td>$1,160,000</td></tr><tr><td>Less: Excess of eligible purchases in 2023</td><td>($610,000)</td></tr><tr><td>2023 Reduced Section 179 dollar limit</td><td>$550,000</td></tr></tbody></table></figure>



<h4 class="wp-block-heading">The Section 179 Business Income Limitation</h4>



<p>After applying the Section 179 dollar limit, each taxpayer can take a Section 179 deduction to the extent of their taxable income.&nbsp;</p>



<p>If your taxable income limit prevents you from taking your entire Section 179 deduction, the IRS offers relief: You can carry the excess to the following tax year.</p>



<p>Continuing the above example, imagine your 2023 business taxable income was $400,000 without the Section 179 tax deduction. Even though your Section 179 dollar limit was $550,000, your 2023 business income limitation would be $400,000.&nbsp;</p>



<p>However, your business could carry forward the remaining $150,000.&nbsp;</p>



<p>Want to know how the phase-out threshold and business income limitation apply to your business? <a class="link" href="https://1800accountant.com/services/small-business-taxes">Check with professionals for help with tax calculations</a>.&nbsp;</p>



<h3 class="wp-block-heading">Bonus Depreciation and How It Works with Section 179</h3>



<p>Bonus depreciation, governed by <a class="link" href="https://www.law.cornell.edu/uscode/text/26/168" target="_blank" rel="noreferrer noopener">Internal Revenue Code Section 168(k)</a>, follows separate, complex rules. Generally, taxpayers may deduct 80% of the cost of eligible property placed in service during 2023.</p>



<p>How does bonus depreciation work with Section 179?&nbsp;</p>



<p>Your business should deduct Section 179 depreciation first. After calculating your Section 179 tax deduction, determine whether your remaining property is eligible for bonus depreciation. Your bonus depreciation deduction represents 80% of the remaining property cost.&nbsp;</p>



<h2 class="wp-block-heading">How to Claim the Section 179 Deduction</h2>



<p>Follow our step-by-step guide to take advantage of your Section 179 tax deduction. We also recommend referring to the detailed instructions in <a class="link" href="https://www.irs.gov/publications/p946" target="_blank" rel="noreferrer noopener">IRS Publication 946</a>.</p>



<h3 class="wp-block-heading">Step 1: Determine Which Property Qualifies for Section 179&nbsp;</h3>



<p>Gather your equipment purchase records. Consider the property you placed in service during the year and determine your eligibility for the Section 179 deduction.&nbsp;</p>



<p>Remember, your business should actively use the property at least 50% of the time.&nbsp;</p>



<h3 class="wp-block-heading">Step 2: Figure Your Section 179 Dollar Limit</h3>



<p>Did you purchase less than $2,890,000 of eligible property in 2023? If so, you’re entitled to the entire Section 179 deduction, depending on your taxable income. Refer to the phase-out threshold if your purchases exceed the limit.&nbsp;</p>



<p>Follow the separate limitations that apply to sport utility vehicles.&nbsp;</p>



<h3 class="wp-block-heading">Step 3: Calculate Your Business Income Limitation</h3>



<p>Your Section 179 depreciation is limited to your taxable income without the deduction. Determine your taxable income to figure out the maximum deduction you can take.&nbsp;</p>



<h3 class="wp-block-heading">Step 4: Complete IRS Form 4562, Part I</h3>



<p><a class="link" href="https://www.irs.gov/pub/irs-pdf/f4562.pdf" target="_blank" rel="noreferrer noopener">IRS Form 4562</a> reports the depreciation expense deducted on your tax return. Fill out Form 4562, Part I, to elect the Section 179 tax deduction. Complete each line to compute your business deduction. </p>



<p>Refer to the <a class="link" href="https://www.irs.gov/instructions/i4562" target="_blank" rel="noreferrer noopener">Form 4562 instructions</a> as you complete the form. </p>



<p>Need help? <a class="link" href="https://1800accountant.com/services/small-business-taxes">Consult tax professionals</a> who can guide you through Section 179 calculations and compliance.&nbsp;</p>



<h2 class="wp-block-heading">Impact of Section 179 on Business Planning</h2>



<p>The Section 179 tax deduction can be valuable when planning business purchases.&nbsp;</p>



<p>If your business is preparing for large equipment purchases, you might wish to delay some purchases until the following tax year. You may be able to ensure greater deductions by keeping your purchases below the phase-out threshold each year.&nbsp;</p>



<p>Additionally, the Section 179 deduction might not benefit a taxpayer with a low business income limitation. The taxpayer could forego the Section 179 deduction and instead follow traditional depreciation rules.&nbsp;</p>



<p>Is your business planning an acquisition or large property purchases? Review our <a class="link" href="https://1800accountant.com/blog/small-business-tax-deductions-checklist">tax deduction checklist</a> and <a class="link" href="https://1800accountant.com/services/small-business-taxes">consult with professionals</a> to maximize your Section 179 deduction.&nbsp;</p>



<h2 class="wp-block-heading">Partner with Business Tax Professionals</h2>



<p>Want to take advantage of the Section 179 tax deduction?&nbsp;</p>



<p>Follow the steps in this article as you calculate your deduction and complete your tax return. <a class="link" href="https://1800accountant.com/services/small-business-taxes">Don’t forget to consult small business tax professionals with questions about tricky rules</a>.&nbsp;</p>



<p>Partner with 1-800Accountant tax professionals, who can help you understand how the rules apply to your business. You shouldn’t have to work through the Section 179 nuances alone.&nbsp;</p>



<p>1-800Accountant can help you calculate depreciation and maximize your deductions.&nbsp;</p>

Taxes can be a headache, especially when you’re unsure of the technical rules.&nbsp; Section 179 allows taxpayers to take an immediate tax deduction for property placed in service during the year instead of deducting the cost over several years.&nbsp; This article will explain the Section 179 rules and help you understand how to take advantage [&hellip;]

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Section 179: Everything You Need to Know

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