Starting a business comes with a slew of emotions. There’s plenty of excitement over launching a product or service you created. Chances are if you’ve created a business plan, you have an idea of how you’ll utilize the sales when they start coming in. Unfortunately, there’s nothing to damper the initial enthusiasm of a new business like taxes. 

Understand Your Legal Structure

Is your company a sole proprietor, LLC, or corporation? Your small business tax responsibility will vary depending on the type of business you’ve formed.

LLC businesses are taxed on the individual level. Single-member LLCs are taxed like a sole proprietorship. Multiple member LLCs can choose to be taxed as a C corporation or partnership. Check your state for any upfront costs to set up your LLC business and make sure you’re understanding your state tax obligation for running an LLC.

Corporations can have the disadvantage of being taxed twice. You’ll have a choice between the C corporation or S corporation. Traditionally, corporations fall under the C corporation. This structure utilizes shareholders, employees, directors, and aboard. Double taxation is when both the company and shareholders are taxed. 

The S corporations transmit funds directly to the shareholders. This avoids double taxation but S corporations can have no more than one hundred shareholders. 

Being a sole proprietor means you are the only owner and operator of your business. This means you assume all risks and financial obligations of your business. Taxes are simple since you report them on your own personal tax return.

Set Aside Funds

Don’t wait until tax time to pay your taxes. If you understand the type of business you’re running and the tax bracket you fall under, you should be able to estimate the taxes that will be owed. Set aside funds in a savings account to pay your taxes. 

Stress will go down with a little preparation and the tax season won’t seem as overwhelming if you’ve done your homework and put aside funds to go toward your taxes.

Claim Business Deductions

Running a company has plenty of costs and many of those expenses can be claimed on your small business tax return. Don’t miss out on the tax deductions you could get. Most people don’t realize they can write off a portion of their startup costs. If you have $50,000 or fewer startup costs, the IRS can deduct up to $5,000 in startup expenses. 

Understanding small business tax can be daunting but if you take a look at the structure of your business, your tax bracket, and state fees, you’ll be off to a better understanding of the initial costs. Setting aside funds throughout the year will help your tax season go smoother and claiming business deductions will save you tons of money.