Operating a business gives you a handful of dealings in terms of taxes. The form and type of the business you operate determines what taxes you must pay and how you are going to pay them. In this article, you will learn the two types of taxes that most business owners pay and the difference between them.
Business tax is the pecuniary value imposed on your business by law which is collected annually. The tax rate can depend on the tax regulation in your state as part of its revenue-generating mechanism. Business income tax is entirely a different thing. In running a business you need to account for income tax on your profits less the deductions that you can get in a specific tax year.
Can you evade business taxes and business income taxes? The answer is No. What most business owners often mistaken is thinking that they can be excused for not paying taxes, therefore intentionally avoiding the payment of yearly taxes.. In result, the business owner can be penalized for such act. A person may be able to avoid payment of huge taxes by starting off with a small business, rather than building a full blown business for startup.
The perk of being a small business owner is that a person is able to deduct business expenses from the taxable income. These deduction somehow soften the blow of having to acquire tools and materials needed for business operations such as computer, office supplies, health insurance, and retirement benefits.
For instance, your marginal tax bracket is 25 percent, if you purchase a computer for $1, 000, you can get a tax deduction of 25 percent allowing you to cost only $750. Oftentimes business owners also overlook some potential tax deductions such as those itemized deductions provided in the state regulation.
It is imperative not to get carried away with purchasing things for your business though, just because you have tax deductions. You need to understand that tax deductions are not designed to make your business free. It is imposed by the government to allow businesses to elevate despite the burden they have.
Tax deductions can only apply for those things that are badly needed for your business operations. However other things that are for pure convenience and luxury cannot be added. The higher the income of your business, the higher your business income tax will be.
Being a responsible business owner and tax payer can often save you from extreme financial dilemma especially during times of assessment. When you have paid your business taxes, it means your business will be free from penalties should you miss your taxes intentionally.
Now that you know the difference between business tax and business income tax, including tax deductions there is no more reason why you would want to delay or evade payment of taxes. While it is true that taxes can really be expensive, the slips of paper you cram in your office drawer can help you a lot.S