Understanding your taxes, especially when you are a businessperson, comes with a plethora of benefits. For starters, you will always be in a position to avoid defaulting which will not only affect your credit access but your credibility as well. And as you already know, your credibility is everything as far as business is concerned.
You’ll also get to understand what a disregarded entity is and how it can be included in your taxes since it’s not regarded by the IRS. Here are some of the benefits that come with your understanding of taxes, how they work and how they will end up affecting your business:
Understanding Your Taxes Makes Your Record Keeping Easier
It goes without saying that if you can understand how the taxes affect your business, then you can keep your records accurately. When it comes to record keeping, it does go way beyond listing your income and expenditure right before you get to balance that sheet.
Once you understand the taxes, you’ll know what records need to be recorded and what doesn’t. And that’s exactly where the disregarded entities come into play. Some of these so-called disregarded entities may include some employees, land, and other forms of property. You can also own a business that is considered a pass-through business but not a disregarded entity.
And that’s exactly why you need to understand the difference and it only starts when you get to know how taxes work. But then again, if this comes off as way too much work, then, by all means, get a CPA to do the work for you. It might cost you a little more but will be worth it in the long run.
You Can Avoid Seizure of Assets in Case of a Debt
When you are a business owner, especially a sole proprietor, it would be quite easy for you to protect your assets by simply forming an LLC. This is important because hiding your assets knowingly is deemed illegal and can, for that very reason, have some undesirable legal ramifications.
Once you list your business as an LLC, you will be in a position to list certain valuable assets as separate entities. That way, whenever your business is sued for whatever reason, then by law you won’t have to lose any of your assets in the event of failure to pay your debts. And all this will start by your understanding of how taxation works.
You Can Legally Avoid Additional Taxes
You can also find yourself evading paying certain forms of taxes just by understanding how to do so above board. Some of these additional taxes include Medicare taxes and Social Security taxes. One thing you can do to avoid paying additional taxes is by listing yourself as a bona fide employee of your own business.
Unfortunately, for this move, you can do this but you might end up affecting your Social Security benefits in the long run. It is, therefore, a good idea for you to make a choice before doing anything else. You can also start an S-Corp signing yourself as an employee and assign yourself a smaller salary. Doing so will make sure you are avoiding the payroll taxes and their ilk.
Just make sure your salary isn’t way too small to raise eyebrows because once it does, it becomes illegal and that alone is enough to attract criminal charges, something you should be trying your level best to avoid. And that’s exactly why you need to understand how these taxes work or, if not, then hire someone who does and pay them.
Understanding how taxes work comes with a plethora of benefits which will allow your business to grow. Also, understanding your business and occupation tax will also make you the smart entrepreneur since you’ll know how to maneuver through your expenses and, in the end, still maintain healthy cash flow in your business.
But as mentioned earlier, if you don’t have the time to do it, it would be a brilliant idea for you to hire a professional to do the heavy lifting for you. That way, you won’t even have to worry about taxes and therefore have a lot more time to run your business as efficiently as you possibly can.
Thankfully, its never too late to learn how to do your taxes or, better still, contracting a professional to do it for you. Do this and you’ll notice an incredible change in your business.