Tax Tip #1: Determine the Right Entity Type

One of the first and most important steps when starting a business is determining the right entity type. Agnes emphasizes the significance of this decision, as it directly impacts the tax forms you’ll need to file. The options include Limited Liability Company (LLC), Corporation, S Corporation, and more. Each entity type has different tax implications, and choosing the right one ensures that you comply with the relevant tax requirements.

Agnes advises consulting with an experienced tax professional to understand the advantages and disadvantages of each entity type based on your business’s specific circumstances. For example, incorporating your business may offer certain benefits, but it could also result in double taxation if you’re the sole owner. On the other hand, an LLC allows you to file taxes with your personal tax returns, providing flexibility and potential tax savings.

Tax Tip #2: Be Aware of Sales Tax Obligations

If your business involves selling products or providing certain services, it’s crucial to determine whether you need to file sales tax. Agnes highlights the importance of timely and accurate sales tax filings, as states can be unforgiving when it comes to their share. Failing to file or paying sales tax properly can lead to penalties and unnecessary complications.

Agnes recommends visiting your state’s official website to understand the specific sales tax obligations for your business. Each state has different requirements, and it’s essential to stay compliant. Even during slower quarters or periods with no sales, it’s still necessary to file a sales tax form with zero sales to avoid estimates filed by the state on your behalf.

Tax Tip #3: Differentiate Between Employees and Contractors

When starting a new business, it’s important to determine whether you’ll have employees or contractors. This decision has significant implications for payroll tax withholding and filing. Agnes explains that certain tax laws require businesses to withhold payroll taxes from employees but not from contractors.

Understanding the distinction between employees and contractors is crucial to avoid potential penalties and ensure compliance. If you have employees on payroll, you’ll need to file quarterly payroll taxes, including the withholding for social security and Medicare. Neglecting these filings can lead to serious consequences for business owners.

Agnes suggests consulting with a knowledgeable tax professional to understand your obligations and ensure proper handling of payroll taxes. Working closely with an accountant or tax advisor can help you navigate the complexities of employee payroll and stay on top of your tax responsibilities.

Tax Tip #4: Maintain Proper Documentation

Accurate record-keeping is essential for any business, especially when it comes to taxes. Agnes emphasizes the importance of maintaining proper documentation to avoid complications during tax filings. She specifically highlights two accounts that can be misleading if not carefully managed: petty cash and office expenses.

It’s crucial to keep track of all expenses related to your business, including receipts, invoices, and any other supporting documents. These records serve as evidence of your business expenses and can help you maximize deductions while ensuring accuracy in your tax filings.

Agnes recommends adopting a paperless approach whenever possible. Electronic copies of documents can be stored securely and provide a clear trail of your business transactions. However, it’s essential to maintain organized records, especially for petty cash and office expenses, as these categories can be closely scrutinized during audits or reviews.

During the discussion, Agnes and the host share personal experiences of discovering additional deductible expenses through meticulous record-keeping. They emphasize the benefits of maintaining a comprehensive spreadsheet or system to track expenses and ensure that all eligible deductions are claimed.

Tax Tip #5: Understanding Net Operational Losses

Running a business involves costs, and sometimes the income may not exceed the expenses, resulting in net operational losses. Agnes delves into the concept of net operational losses and how they impact your taxes.

She explains that certain expenses, such as business-related meals and entertainment expenses, can be deductible, but it’s crucial to understand the limitations. Business meals that are directly related to client meetings or work-related travel expenses can qualify as deductions, but personal meals or extravagant expenses are not eligible.

Agnes advises business owners to keep receipts and records of all deductible expenses. By doing so, you can support your claims during tax filings and ensure compliance with IRS regulations. It’s important to note that deductible expenses are typically reimbursed at 50%, meaning only a portion of the expenses can be claimed.

Additionally, she mentions other deductible expenses like uniform costs, health insurance premiums, and certain work-related insurances. These expenses can vary depending on the nature of your business and specific requirements, so consulting with a tax professional is essential to ensure accurate deduction claims.

Conclusion

Starting a new business is an exciting venture, but it comes with various responsibilities, including managing your tax obligations. The top five tax tips shared by Agnes Amisano provide valuable insights into navigating the complex world of business taxes.

By determining the appropriate entity type, understanding sales tax obligations, differentiating between employees and contractors, maintaining proper documentation, and comprehending net operational losses, you can establish a strong foundation for your business’s financial health and compliance.

Remember, these tips serve as general guidelines, and it’s crucial to consult with a qualified tax professional who can offer personalized advice based on your specific circumstances. Building a relationship with an accountant or tax advisor can help you stay informed, make informed decisions, and ensure your business remains on the right track when it comes to taxes.

We encourage you to watch the full video for a detailed discussion with Agnes Amisano and Ryan, where they delve deeper into each tax tip and share additional insights. Click here to watch the full video: Watch the Full Video.

At New York Tax Resolutions, we understand the complexities of business taxes, and our team of experts is here to assist you every step of the way. Contact us today to schedule a consultation and ensure your business’s tax compliance and success.