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Navigating Tax: Essential Tips for Entrepreneurs

Sam Kubert 3min read
Posted in: Learn Small Business Trends
Tagged: Business Compliance Corporate Transparency Act Entrepreneur Tips Tax Deductions Tax Strategies

 

As business owners manage a wide array of responsibilities, staying on top of tax obligations is essential for financial success. Navigating the complexities of the U.S. tax code, along with new regulations like the Corporate Transparency Act (CTA), can be challenging but crucial. Below are key strategies and recent updates to help entrepreneurs manage their tax responsibilities and avoid common mistakes.

The U.S. tax code, while intricate, provides various deductions and strategies that many business owners overlook. According to GOBankingRates.com, entrepreneurs primarily face two types of taxes: income tax and self-employment tax. Income tax is based on earnings but is influenced by different tax brackets, making it less straightforward. Self-employment tax, which covers Social Security and Medicare, can catch business owners off guard as they must pay the entire amount, unlike employees who share these costs with employers.

To effectively reduce tax liability, it’s vital to lower your adjusted gross income (AGI) by maximizing deductions. Contributions to retirement accounts like IRAs and 401(k) plans, as well as health savings accounts (HSAs), are either pre-tax or tax-deductible, helping to reduce AGI and, consequently, your tax burden. The IRS also allows deductions for home office use, as long as the space is used exclusively for business, and for vehicle expenses through the standard mileage rate or actual costs.

New laws, such as the Corporate Transparency Act (CTA), add reporting requirements for businesses. As outlined by FinCEN, the CTA seeks to prevent money laundering by requiring businesses to report their beneficial owners’ information. Most corporations and LLCs must comply, except those with over 20 employees and $5 million in gross receipts. The deadline for initial reports is January 1, 2025, and failure to comply can lead to significant fines or criminal penalties.

South Carolina has also updated its business tax credits, according to CLA. These updates expand eligibility for job development, retraining, and corporate headquarters tax credits. Notable changes include allowing remote workers in job counts, extending retraining credits to warehousing and distribution companies, and clarifying income and job creation requirements. Businesses can now count remote employees based in South Carolina, North Carolina, or Georgia toward job credits if they are subject to South Carolina withholding.

Leveraging these deductions and credits can substantially lower your tax obligations, but it’s equally important to avoid common audit triggers. CPA Crystal Faulkner advises that high-income earners are more likely to face audits, making accurate record-keeping and full income reporting, including cryptocurrency transactions, essential. Proper documentation of charitable contributions and rental property loss claims can also help avoid scrutiny from the IRS.

Staying up to date with tax regulations and using these strategies ensures business owners can maximize savings and remain compliant. For personalized advice, consulting with a tax professional is key to making sound financial decisions for your business.