Owing your own business is a lot of fun, it brings many freedoms. You can control your own income and you also have the ability to choose your own working hours. But still, it does not exempt you from paying taxes. You still have to pay taxes for yourself and even perhaps for your employees as well. It is important to mention, that you manage your taxes very different than an employee because you are a business owner. There are lots of advantages and disadvantages when you own your own business.
Some of the things which you should consider before opening your business are:
Responsible for Own Taxes –
Employees don’t have to ever worry about their taxes, deductions etc. They know that their employer will be working on this vertical for them. They don’t have to save money for the year end etc. Having said that a business owner has to understand this and needs to follow the precautions from day one of his business. Owning a business requires a lot of patience as well as a discipline towards tax and their deadlines. The amount which you own to the IRS depends upon how much profit you are making on per year basis. If you do not do these calculations on the regular basis, you may end up paying tax as well as the penalties with that.
Medical Deductions –
While looks very daunting to pay your own taxes and also to save for them till the year-end, people who own business have the privilege of enjoying a variety of deductions to help undo some of their tax liability. Employers have to pay a percentage of their employees’ healthcare costs. However, if you are self-employed you are responsible for your own premium payments. IRS allows the business owners to deduct 100 per cent of their healthcare premiums and some other medical costs to facilitate the rebate to business owners in tax liability.
Home and Business Deductions –
Running your own business is not an easy job, it can incur other related costs as well. Operating your business from home can cause for high electricity as well as telephone bill. Even if you are not operating your business from home, there are other costs as well which you need to consider if you running your own business. These costs include office supplies, computer equipment, travel expenses, computer costs etc. IRS understands this and to help reduce your tax cost, you can show all these expenditures under business expenses. Save all your purchase receipts which later you can use for your tax advantages.
Other Deductions –
You can reduce your tax liability by writing off your mortgage interest every year. As per the law, you can’t write off your mortgage payment if you are running a business out of home however, you can still deduct whatever you spend on mortgage interest. In the end, it is very important to decide whether you want to do business or you want to be a salaried employee. They both have their own advantages and disadvantages. Chose well after considering all your options.