10 Things to Know About Taxes Before Starting Your Own Business

Starting a business is an exciting journey, full of possibilities and challenges. As an aspiring entrepreneur, it’s easy to get caught up in the vision of your product or service and the dream of business success. However, before you get started, there’s one critical aspect of business law you must understand thoroughly: taxes.

Serving Reno, Nevada, the Law Office of Scott N Tisevich, Esq is here to help. While taxes may seem like an overwhelming subject, they’re an essential part of running any business. Knowing the basics can save you time, and money, and avoid potential legal pitfalls. Read on to learn more about the key tax considerations you must keep in mind before starting your business.

1. Choosing the Right Business Structure Affects Your Taxes

When you start your business, one of the first decisions you’ll need to make is which business structure to choose. Whether you select a sole proprietorship, partnership, limited liability company (LLC), or corporation, each structure has different tax implications.

For example, if you choose to operate as a sole proprietorship, you’ll report your business income on your personal tax return. This makes filing relatively simple, but it also means that you’ll be personally responsible for any tax obligations your business incurs.

On the other hand, forming an LLC or corporation may offer certain tax advantages and protection. An LLC, for example, is generally treated as a pass-through entity for tax purposes, meaning the company itself doesn’t pay taxes. 

Instead, the income passes through to the owners, who report it on their personal tax returns. Corporations, however, are taxed as separate entities, which can sometimes lead to double taxation, especially in C-corporations.

Choosing the right business structure is critical for legal liability protection and tax purposes. A business tax law professional can help you make this decision, taking into account your personal and business financial goals.

2. Knowing Sales Tax and Its Impact on Your Business

If you’re selling tangible goods or certain services, you’ll need to understand how sales tax works in Nevada. Unlike some states, Nevada imposes a sales tax on most goods and some services. As a business owner, it’s your responsibility to collect the appropriate sales tax from customers and remit it to the state.

Nevada has a state sales tax rate of 6.85%, but local jurisdictions can impose additional taxes, so the total rate can be higher depending on where your business operates. Failing to collect and remit sales tax can lead to penalties, fines, and interest charges, which is why it’s crucial to be diligent about this aspect of your business operations.

Your business tax law professional can assist you with understanding what goods or services are taxable, how to calculate sales tax, and how to comply with Nevada’s tax reporting requirements. You’ll also want to make sure that you keep accurate records of sales tax collected, as you’ll be required to submit regular reports to the state.

3. Self-Employment Tax and Social Security Contributions

If you’re self-employed or operating a small business as a sole proprietor, it’s important to be aware of the self-employment tax. This tax is designed to fund Social Security and Medicare, and it applies to your net earnings from your business.

While you can deduct the employer’s portion of the self-employment tax on your personal income tax return, this tax can still add up quickly. If you’re working with a business tax law professional to form your business, they can help you structure your business in a way that minimizes this tax burden. 

For example, if you elect to form an LLC and treat it as an S-corporation for tax purposes, you may be able to reduce your self-employment tax liability by paying yourself a reasonable salary and treating the rest of your income as a distribution.

4. Estimated Taxes and Quarterly Payments

One thing many new business owners don’t realize is that, unlike employees who have taxes automatically withheld from their paychecks, business owners are generally required to make estimated tax payments on a quarterly basis. These payments cover your income tax as well as your self-employment tax.

If you expect to owe more than $1,000 in taxes when filing your return, the IRS requires you to make these quarterly payments. This can be particularly important for a business owner who has irregular cash flow. Missing an estimated tax payment can lead to penalties and interest charges, which is why it’s essential to stay on top of these obligations.

5. Keeping Track of Business Expenses and Deductions

One of the advantages of owning a business is the ability to deduct legitimate business expenses from your taxable income. This can significantly reduce your tax liability. Business expenses can include anything from office supplies and equipment to marketing costs and travel expenses, as long as they’re necessary and directly related to the operation of your business.

A business tax law professional will advise clients to maintain meticulous records of all business-related expenses. You should keep receipts, invoices, and statements to support your deductions. It’s also a good idea to have a separate business account so that personal expenses don’t get mixed up with business expenses.

Some common business deductions include:

• Home office deduction: If you work from home, you may be able to deduct a portion of your rent or mortgage, utilities, and other home-related expenses.

• Vehicle expenses: If you use your vehicle for business purposes, you may be able to deduct mileage or actual expenses such as gas, maintenance, and insurance.

• Employee wages and benefits: If you hire employees, their wages, benefits, and even certain training costs may be deductible.

A business tax law professional can help you understand the rules surrounding these deductions and make sure you’re taking full advantage of the tax breaks available to you.

6. Hiring Employees and Understanding Employment Taxes

If your business grows and you hire employees, you’ll need to understand the various employment taxes that come with having a workforce. These taxes include Social Security, Medicare, federal unemployment (FUTA), and state unemployment (SUTA). In addition to these, you may be required to withhold income tax from your employee’s paychecks.

As a business owner, you’ll also be responsible for matching the employee’s contribution to Social Security and Medicare, which is part of the self-employment tax for a sole proprietor. When you pay wages, you’ll need to submit these amounts to the IRS and your state’s taxing authority.

Nevada doesn’t impose a state income tax, so you won’t need to worry about withholding state income tax from employees’ paychecks. However, Nevada has a state unemployment insurance tax (SUTA) that you’ll need to pay if you have employees.

A business tax law professional can assist you with setting up the proper payroll system, making sure that you’re withholding the correct amounts, and filing the necessary returns. 

Additionally, they can help you through things like employee classification, making sure you don’t misclassify workers as independent contractors when they’re, in fact, employees. Misclassification can lead to hefty penalties, back taxes, and other legal issues.

7. Business Tax Credits and Incentives

As a business owner, you may be eligible for certain tax credits or incentives, depending on the nature of your business and where you operate. For example, Nevada offers tax incentives to businesses that create jobs in certain industries or located in designated areas. 

Additionally, federal tax credits may apply to businesses that invest in renewable energy, hire employees from certain disadvantaged groups, or conduct research and development.

There are also federal tax credits such as the Small Business Health Care Tax Credit, which helps small businesses with fewer than 25 full-time employees provide health insurance to their workers. These credits can provide substantial savings and shouldn’t be overlooked.

Be sure to work with a tax professional to fully understand what credits may be available to you and make sure that you’re following the proper procedures to claim them.

8. Tax Filing Deadlines and the Importance of Timely Payments

Filing your taxes on time is crucial to avoiding penalties and interest charges. As a business owner, your tax filing deadlines depend on the structure of your business. Sole proprietors typically file their taxes by April 15, while LLCs, partnerships, and corporations may have different deadlines depending on their specific structure.

In addition to annual filings, you’ll need to be mindful of your quarterly estimated tax payments. These are typically due on April 15, June 15, September 15, and January 15 of the following year. If you don’t make these payments on time, you could be subject to late payment penalties, and interest may accrue.

Furthermore, filing your taxes late can lead to more significant issues, such as audits and disputes with the IRS. If you’re unsure of your filing deadlines or have questions about extending the filing date, it’s a good idea to consult with a business tax law professional. They can guide you on the proper filing process.

9. Handling Tax Audits

Even the most diligent business owners can sometimes be subject to a tax audit. If the IRS selects your business for an audit, it doesn’t necessarily mean you’ve done something wrong. Audits are a standard procedure designed to verify compliance with tax laws. However, an audit can be a stressful and time-consuming process, so it’s essential to be prepared.

Having proper records is your first line of defense during an audit. If you hire a business tax law professional, they can assist you in preparing for an audit and working through the process. Your professional can also represent you in the event of a dispute with the IRS, making sure that your rights are protected and helping to minimize any potential penalties or fines.

It's important to remember that tax audits can sometimes be triggered by red flags, such as reporting unusually high deductions compared to your income. This is another reason to maintain clear and accurate records, making sure you can justify all your deductions.

10. Planning for Taxes as Your Business Grows

As your business expands, so too will your tax obligations. What starts as a simple operation may soon involve more complicated tax issues, such as multi-state taxation, international tax considerations, and the need for more sophisticated tax planning strategies.

The earlier you begin planning for your tax obligations, the better you’ll be at mitigating potential tax burdens and capitalizing on tax advantages. By consulting with tax professionals and legal professionals, you can structure your business and operations to minimize taxes and maximize profitability.

A tax strategy may include measures like deferring income, taking advantage of available credits, or using tax-deferred retirement accounts to help your business grow while reducing tax liability. A business tax law professional can help guide you in developing a long-term tax strategy that aligns with your business goals.

Get in Touch

The Law Office of Scott N. Tisevich, Esq serves clients throughout Reno, Nevada, Churchill County, Lyon County, Carson City, Storey County, Douglas County, and Las Vegas, Nevada. Contact the experienced tax law attorney, Scott N. Tisevich, today.