If you are a small business owner, it is possible that you may have made the assumption that the IRS doesn’t care about your tax liability. This is the wrong assumption to make. Many reports indicate that the IRS is in fact careful to audit small business owners in recent years. Of course, the government may not have an interest in your small business before you make a profit, but once you start enjoying a profit, you are fair game.

The Early Stages

For that reason, it is important to pay close attention to your tax obligations during the early formation stages of your business. Why? You want to get as many deductions as you are entitled to and you also want to avoid any liability issues that may result from taking unauthorized or unfamiliar deductions. There are several things that you should be aware of as it relates to your federal income taxes. Let’s take a closer look:

Legal Entity and Tax Burden

Not every small business has a similar tax burden. As a matter of fact, the legal entity that you have selected when forming your business has a huge impact on your tax liability. Therefore, you should think carefully about how you are going to legally structure your business. Seek the help of one of our friendly accountants in Denver if you are not sure. There are several small business structures to consider:

• Sole Proprietorship
• Limited Liability Corporation
• S Corporation
• Partnership

Each one of these has their own restrictions and benefits. For instance, with an S Corporation, the small business owner pays taxes as a shareholder instead of as a corporation. However, you must have at least 100 shareholders to benefit. While, you may have more deductions, it is possible that you may have to compete with double taxation. Consult with a Denver accountant or Denver tax specialist to establish which legal entity will best suit you.

The Expenses

Most of your business expenses are legally deductible and most of your profit is taxable. You are given legal options as to when and to the extent in which you are able to claim specific deductions. You can claim an allowance for depreciation after purchasing equipment for your business, however, you may be eligible to deduct the entire equipment cost in the first year of purchase when it was used for service. If you used your personal vehicle for business, you may be qualified to deduct the actual cost or use the standard mileage rate. In order to do so, you have to maintain good written records of usage.

Startup Expenses

Many new business owners mistakenly think that their startup expenses are not deductible, but they are! There are a wide range of startup expenses that you can deduct, even before you start receiving customers. Don’t try to figure this out on your own. A reputable Denver accountant will be able to assist you. Some of these startup costs include:

• Business licensing
• Fees for incorporation
• Buying goods
• Attending seminars and trade shows
• Training staff
• Conducting market research
• Product analysis

Self Employment Tax

Yes, the IRS requires that all business owners pay their self-employment tax. You can ease your tax burden by deducting the employer-equivalent element of your self-employment tax. You can also claim fifty percent of the claim you make for your self-employment tax as income tax deduction.

If you want to make sure that your business taxes are in good IRS standing, you should consider getting professional help from an accountant or tax advisor. We can help guide you to fully maximize your deductions. Bloch, Rothman and Associates offers Denver tax return services for small businesses. Contact us at 303-321-7160 for a free tax consultation!