Posted by : Daniel Stoica in (Blog, Business Tax, Business Tips, Tax Tips, Tax Topic) On: June 23rd, 2011
In 1913, when income taxes were first instilled, the tax code book was only a half an inch thick. The very first tax return was only two pages with a four page instruction book. Things have certainly changed.
The tax code book is now two to four inch volumes and over a million regulations which explain what the code means. When you consider all of the tax-related court rulings that are attached to the code, you have 25 feel of library shelves.
The first thing a small business owner needs to realize is that with the same amount of profit, you won’t necessarily pay the same amount of taxes as another small business.
If you have ever wondered if others who make the same amount of money as you, but pay less in taxes, the answer is yes.
It’s legal for one business owner to pay less than another, even with the same income. Most small businesses pay more in taxes just because they own the wrong type of business. It doesn’t seem fair, but the truth of the matter is, it is legal.
The term “type of business” means whether you are a sole proprietorship, a partnership, a C corporation, an S corporation, or a limited liability company (LLC).
There are many types of business ownership. If you are not the “right” type, you will end up paying several thousand more in taxes than you need to. There are a lot of differences in the amount of taxes that these different kinds of businesses pay.
Sole proprietors generally end up overpaying their taxes because they are sole proprietors. Have you considered the tax benefits of a partnership, corporation or LLC? It’s what’s called a choice of entity analysis. By looking at the benefits of operating your business as anything other than a sole proprietorship, you could save thousands in taxes each year.
Talk to a tax professional to find out if changing your “type” of business will help you pay less in taxes.