FAQs for a new business owner.
Taxes are an unfortunate reality for every new business, and the IRS isn’t really
known for making things easy to understand. We’ve asked Dennis Dane from
Dane Tax Solutions to help answer some of the most common tax questions
from new businesses owners like you.
Do I have to file my taxes quarterly?
Most businesses are required to file some sort of tax return quarterly. Sole proprietor
businesses typically need to file estimated quarterly tax payments. Corporations
need to file quarterly payroll tax returns. There are some specific cases where
sole proprietors may not need to make estimated tax payments. Talk to a tax professional
to find out what is required for your specific business and to help you plan your
tax payments accordingly, or learn more about our
Small Business Tax Package.
What can I expense?
Any item purchased and used for your business can be expensed, but not all expenses
are treated equally. Meals and Entertainment expenses are limited to 50%. This means
that for every $100 you spend on meals and entertainment you may only deduct $50
from your taxable income. Business gifts are limited to $25 per person. Furniture,
equipment, and other larger items (computers) can either be expensed or depreciated
(expensed over the life of the asset). Some businesses choose to depreciate these
types of assets in order to spread the tax benefit out over the life of the item
instead of receiving it all in the year of purchase. A tax professional can help
advise you on how best to manage your business expenses.
Can I expense mileage?
Yes, you can expense your business mileage. If you have a home office (room only
used for business) you can deduct the mileage starting from your home for any business-related
travel. If you have an office outside the home, your daily drive to and from the
office is not deductible. The mileage from the office to meetings or for other business
purposes (ex. picking up office supplies) can be expensed. The mileage rate for
2012 is 55.5 cents per mile. It is important to keep a mileage log of where you
went, who you met with, and the purpose of the meeting or trip.
How can I deduct my home office?
A home office must be used 100% for business. This means the office cannot be used
as a spare bedroom or have any other use. To deduct your utilities and other household
expenses you would take the square footage of the office and divide it by the total
square footage of your home. Take that percentage to calculate the expense. Direct
expenses to the office, like painting or wiring the office for Internet access,
can be fully deducted.
Do I need to open a separate bank account for my business?
Yes. This will help in tracking your business income and expenses. If your business
was audited, the IRS would rather see you have a separate bank account. A separate
account also makes it much easier to track both your income and expenses in one
What is Self-Employment Tax?
This tax is figured for businesses that are taxed as sole-proprietorships. The tax
is calculated using the net income of the business. The tax rate for the self-employment
tax is 15.3%. Please note that this tax is not part of your Federal and state (if
there is tax in your state) income tax. Those will be shown separately on your income
What tax forms do I need to file?
If you are a Partnership you will need to file Form 1065 where each partner would
receive a Form K-1. The income or loss shown on K-1 will flow to the partner’s personal
income tax return (losses deductible are determined by the partner’s basis).
An S-Corporation will file Form 1120S and each partner will receive a Form K-1 to
report the income or loss on their personal tax return.
A C-Corporation will file Form 1120 where the corporation will pay the tax on the
income, not the partners.
For help with filing the proper tax forms, please see a tax professional or use
our Small Business