According to the Small Business Administration, somewhere around a whopping half a million businesses are born and die each month. If you're a banker who deals with small business loans, some of those businesses are likely your clients. How can you help them get started in 2016? Here are some tax tips for new businesses.
1. Know your taxes and deductions
For owners of new small businesses, the question, "what are my taxes and deductions?" is a gateway to a series of other questions. There’s a pretty direct answer to the first part by pointing to the tax bracket the business resides in, but the second requires some involvement. The main takeaway to instill in all small business owners is the importance of documentation. They may be thrilled at the array of things and the amount which they can deduct, but those potential tax breaks are useless without the proper evidence.
2. Know how your employees and vendors affect your taxes
There’s a crucial difference between these classifications for small businesses. In terms of taxation, hiring employees adds several new wrinkles to the filing process and places a lot more responsibility on the business to comply with regulations. Knowing when to classify someone as an independent contractor can save a small business a good deal of money, but improperly labelling an employee as one will create headaches and have severe consequences such as adjusted back taxes. The DOL’s pending overtime changes and the Affordable Care Act both have big implications in this area.
3. Know your tax breaks
As a business advisor for your clients, this is where you earn their trust the most: finding benefits of which they weren’t previously aware. For example, in Ohio there are serious tax breaks on a certain threshold of small business income tied to their adjusted gross income.
Not all states have legislation like Ohio’s, of course, so that expertise may take the form of knowing some specific deductions unique to your client’s industry or how they conduct business (e.g., environmentally friendly practices).
We encourage you to do research for your clients and keep an open line of communication. Be prompt in responding to their needs and be straightforward about what they can and can’t expect in the tax filing process. Paycor is here to help—check out our banker resource center to learn more.
Sources: Internal Revenue Service, Nolo.com, smbiz.com
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