Everything a business owner needs to know to file their taxes
Business owners in the United States often make mistakes in their tax returns that can generate more than one headache. That is why in Capifinders, we will explain everything you need to know to ensure you succeed with this paperwork that sometimes is cumbersome.
One of the main mistakes is making a negative return, that is, only submitting expenses and very little income, explains Edward Lantigua, expert tax preparer. In addition, many inconsistencies in the accounting of businesses need to be justified.
What expenses can be deducted from a personal income tax return?
It is necessary to know how to differentiate between personal and business expenses. For example, for a cab driver, the costs of the vehicle he uses to work, whether gasoline, insurance, maintenance, or depreciation, are business expenses that must be separated from personal expenses, clarifies Andrés Zambrano from Capifinders.
Meanwhile, personal expenses include house rent, electricity, telephone, and children's expenses. All this must be paid from a personal account, not a business one.
The problem for taxpayers is that they include everything in a single account, so, at tax time, it is a disaster. This results in paying much more tax or paying the wrong amount.
Another issue that you should analyze is when you have a home business. In this case, you can use a certain percentage of the use of the house, even the rent, as a business expense, but you must have a written and detailed plan to make sure the figures are precise. Inside the house or apartment, you must have an exclusive space for the business since you cannot use the living room or the children's rooms to declare it as an expense. Again, specific rules must be followed, and many must learn them.
Latinos struggle to obtain capital to expand their business due to a lack of financial education. When they start a company, they usually have tax problems because the paperwork they show needs to be more solid. After all, they generate a lot of cash but don't want to report it.
The Latino community sometimes wants to avoid investing money in professionals for tax planning. And we have to understand that we need capital to grow. A good tax return for yourself and your business will help you access better money and attractive interest rates.
Remember that to start a business, you must obtain a tax ID and evaluate your performance with this figure. There are different structures for different companies.
For example, the Limited Liability Company (LLC) suits real estate businesses. You must understand that the LLC does not save taxes. It is the only protection. You can protect your natural person from potential financial problems or lawsuits against your legal entity.
If only you are a member, it is taxable on a personal level. However, if you are two people, a couple, it is already considered a partner, and the income is divided between you.
There is also the figure of the corporation or C Corp to which the status is changed. Tax savings can be used, but there must be a payroll. Contrary to the LLC, the partners of the C Corps do not need to file tax returns in the United States. This is only necessary when there is a profit distribution to the shareholders.
This is why many foreigners opt for a corporation when setting up a business in the United States.
The corporation is not taxed at the federal level, and like an LLC, any distributions are passed through to the owner or partners. For example, if a $50,000 down payment of $20,000 is spent, and there is $30,000 left over, that $30,000 goes to the owner and is not taxed at the federal level. Some states do pay the tax.
Now, if it is a regular corporation, that $30,000 would pay tax at the federal level, and it would also pay tax at the personal level.
Phrases that will inspire you
1. "And they don't know how to keep an accounting, which is the biggest problem one faces during tax season."
2. "There is a mix of income, but you also want to make personal expenses somehow or other deductible from business income."
3. "One of the problems that I run into is that business owners encounter strong frustration when they want to access capital because they don't come up with strong enough or that they don't demonstrate that they have, through their tax return, the ability to pay for what they intend as financing to grow."
4 "Very few businesses use depreciation as a tax strategy tool. It's a problem of proper planning and advice."
