If you have a small business, do your own taxes! It’s not difficult and is a good learning experience. After all, you need to know what can be deducted, in order to make the best business decisions. Only bad thing about Small businesses, such as LLC’s, is that they have to pay 15% self-employment tax; that includes Medicare 2.9% and social security 12.4%. The SE Tax combined with Income Tax can really kill a businesses net income. But the good thing is, businesses can claim deductions and exemptions that’ll lower both SE and Income Tax. The major forms small businesses use, include Forms 4562, 8829, and 1040.

Form 4562, depreciation and amortization, is must do for all small businesses. Every business has something they can deduct on this form, whether it’s computer software or company furniture. Best of all, the deductions form this form will not only lower SE but Income tax too! On this form there is a section called election 179, which allows you to deduct the full expense for qualifying assets; you can check for qualifying assets on the 4562 publication. If your asset doesn’t qualify for a full 179 election, you can most likely claim it as a listed property. This means you have to depreciation it throughout its useful life. The amount you can depreciate each year depends on: When you put the asset into service, the amount you use it for business, type of depreciating method it uses, how many useful years it has, and how much it cost. This form can definitely save all businesses a nice amount of money every year, but be warned this is the hardest form to fill out because of measuring depreciation.

Form 8829 is to claim expenses for business use of your home. This form is definitely a red flag to the IRS: People like to abuse the system and claim the majority of their house for business. You can only claim your house for business if you use more than 50% of it for business. Unlike form 4562, this one is very straight forward. You measure your house’s square footage and compare it to what you use for business, to find a percentage. Then you take total house expenses, such as unities and insurance, and multiple it with the percentage; the result is your deduction for business use of home.

The remaining forms are all in the 1040 packet. The first one you fill out is the schedule C, which is profit and loss from business. On the schedule C, you are able to deduct more business expenses, such as advertising, and also include your deductions from Form 4562 and 8829. This form will calculate your total taxable income. The second form is the Schedule SE tax form. This form is also very simple: You take your taxable income and follow its steps to find your SE tax. The final form is for Individual Income Tax, which everybody–who works– fills out. If you have any dependents or tax credits you claim them on this form. Additionally, you can claim itemized deductions and IRA contributions. Be warned, claiming excess itemized deductions is another red flag for the IRS.

If you need any additional help, you can visit the IRS website and use their publications. They use very plain language and are very comprehensive– for the most part.

Yeah.

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Tags: Small Business Tax, Tax

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