FAQ Business And Taxation

Good recordkeeping is essential for tax compliance and financial management. Key records to maintain include:

• Income statements and invoices
• Expense receipts and bank statements
• Payroll and employee tax records
• Business tax returns and supporting documents
• Contracts and legal agreements

The IRS recommends keeping records for at least three to seven years, depending on the type of tax and potential audits.

The IRS considers factors such as control and financial independence when classifying workers:

• Employees – The business controls how, when, and where work is performed. Employers must withhold payroll taxes and provide benefits.
• Independent Contractors – Self-employed individuals who control their work methods. Businesses do not withhold taxes but must issue Form 1099-NEC for payments over $600.

Misclassification can lead to IRS penalties, so it’s important to correctly determine worker status.

Most businesses require some form of licensing at the federal, state, or local level, depending on industry and location. Common licenses include:

• General business licenses
• Professional or industry-specific permits
• Sales tax permits for selling taxable goods/services

Failing to obtain proper licensing can lead to fines or business closure.

If your business does not have taxes withheld (common for self-employed individuals and LLCs), you must pay estimated taxes quarterly. The due dates are:

• April 15
• June 15
• September 15
• January 15 (following year)

Payments can be made through the IRS Direct Pay system or by mail using Form 1040-ES. Late or missed payments may result in penalties.

As of 2024, C-corporations are taxed at a flat 21% federal rate. However, additional state corporate taxes may apply.

• S-corporations and LLCs (if taxed as pass-through entities) do not pay corporate tax; instead, income is reported on individual tax returns.

Tax laws can change, so staying informed is crucial for compliance.

Businesses can deduct the cost of assets (equipment, vehicles, property) over time through depreciation. Common methods include:

• Straight-Line Depreciation – Spreads cost evenly over the asset’s useful life.
• Section 179 Deduction – Allows immediate expense deduction up to a limit.
• Bonus Depreciation – Enables accelerated deductions in the first year.

Consult a tax professional to maximize depreciation benefits.

Small businesses may qualify for various federal tax credits, such as:

• Small Business Health Care Tax Credit – Helps offset employee health insurance costs.
• Research & Development (R&D) Tax Credit – For businesses investing in innovation.
• Work Opportunity Tax Credit (WOTC) – For hiring employees from targeted groups.

Credits reduce tax liability dollar-for-dollar, making them more valuable than deductions.

Closing a business involves several steps:

1. File final tax returns – Mark as “final” on IRS forms.
2. Pay outstanding taxes – Settle payroll, sales, and income tax obligations.
3. Cancel business registrations – EIN, licenses, and permits.
4. Notify creditors and employees – Settle debts and provide final wages.

Failing to close properly can lead to tax penalties and ongoing liabilities.

If you cannot pay taxes in full, options include:

1. IRS Payment Plan – Installment agreements allow monthly payments.
2. Offer in Compromise (OIC) – A potential settlement for less than the full amount.
3. Penalty Abatement – Possible reduction of penalties for first-time offenders.

Ignoring tax debt can lead to liens, levies, and legal action. It’s best to address issues promptly with the IRS.