Small Business Tax Rate Relief - Ways To Obtain Rates That Save You Money
Small businesses are required to pay several types of taxes on top of their regular income tax rates. Many times, these taxes do not appear on the individuals income tax return. These taxes are included in the corporation's or limited liability company's annual financial statement.
The highest rate of taxation for corporations and LLCs is the corporate income tax which can be as high as 38.6% depending on the state where the company operates. Other major types of small business tax rates are the self-employed individual tax which is typically only applicable to US citizens, gift and inheritance taxes, property taxes, and payroll taxes. The corporate tax code includes several other minor taxes including Excise Tax, Franchise Tax, and Employment Tax. These taxes are not included in the individuals annual financial statement, but are reported by the employer to the IRS.
The second highest small business tax rates are the Federal Excise Tax which can be as high as 13% for some companies. The Federal Income Tax is based on one's net income and is calculated by taking a marginal tax amount for each income level. The rates are then multiplied by the number of people in a household to get the taxable income. The highest marginal tax rate on this tax is 13%, which means that a business owner will owe income tax on the first dollar of income earned.
A business owner may also qualify for a federal tax deduction if certain expenses are paid. For instance, the first time home mortgage interest paid is eligible for a deduction. Also, certain expenses incurred to purchase raw materials, machinery, and travel are also deductible. These include utilities expenses, depreciation for office furniture, and expenses to buy supplies.
Another way to take advantage of the new tax reform is to increase an existing non-business portion of the business income tax deduction. This includes expenses paid for employee benefits. In most cases, a percentage of an employees pay, as opposed to an individual portion will be eligible for this deduction. There are limits to the amount of money that can be deducted, and it depends on several factors such as the current employees compensation, average yearly wages, and the average yearly salary plus fringe benefits such as retirement plans and stock options. The owner must be able to document all of his or her expenses during the year in order to take advantage of the deduction.
One thing owners should keep in mind is that while the small business tax rates may have gone down, they have not gone down enough to where they are no longer worthwhile. Cutting deductions is not the best way to fund the business; however, doing so may lead to an under-utilization of funds in other areas. The best approach is still to be conscious and proactive about paying your taxes, even if you can only save a small amount per year. In the long run, being fully compliant with all of the necessary federal and state taxes will reap rewards that will more than cover any small savings that you may receive from lowering your payroll tax obligations. Fin dout more on taxfyle.com/small-business-tax-filing.
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