Tag: tax

Advantage And Disadvantage Of Taxes When You Own Your Business

tax

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 –

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Owning a business requires a lot of patience as well as a discipline towards tax and their deadlines.

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 –

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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.

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.

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Understanding Australian Business Tax Liabilities

When you are a new business owner, you must learn how to handle taxes. They are so many different Australian taxes and this can be very overwhelming. Frankly, most new business owners don’t know how to handle taxes, and they may need to hire professionals that specialize in business tax.

Otherwise, you might encounter business tax troubles and have to deal with taxation authorities as a result.

This is why it is best to learn and understand the taxes that your business is liable for, and they are the following:

Income Tax

This type of business tax is paid based upon the type of business that you have. If you are a sole proprietorship, limited company or a partnership firm, you might have to submit tax returns individually are via your business. For instance, sole proprietorship business income is taxed via the owner’s individual income tax returns.

Capital Gains Tax

You don’t have to file a separate business tax return when it comes to capital gains tax, and they are only accounted for if you have capital gains during the year. So, if you have income due to selling business assets, then this is a capital gain. This tax must be accounted for on your income tax returns. Talk to an accountant for further advice.

On the flip side, if your business suffered any type of loss during an asset sale, this is known as a capital loss and it must also be accounted for on your income tax returns. Keep these things in mind because you could benefit from different types of exemptions that are associated with capital gains.

Goods and Services Tax

If you have a goods and services turnover that is more than 75k, then you must pay a goods and services tax. Even if the turnover is less than 75k, your business is still responsible for this business tax if the company offers taxi services and charges fees.

If your turnover is lower than 75k, but you feel that it might go over this amount within the year, you can register and remain registered for one year. But you don’t have to pay this business tax unless you go over that amount. Once registered, add the GST component so that it can be recovered from your customers.

Fringe Benefit Tax

This business tax is paid on all fringe benefits that you provide your employees. It is based upon a percentage of the benefits paid. If you provide fringe benefits to employees, register with ATO and file an individual tax form in addition to your regular form.

Pay as You Go Tax

This business tax is based on your income and investment expectations. What do you plan to make from these things? A part of your income is withheld as you go in order to pay this tax. The same thing may be required for employee income as well. It is withheld via instalments.

Payroll Tax

This business tax is paid based upon the wages and salaries that you pay for your employees. Do not get it mixed up with the pay as you go business tax. This tax is paid on wages and salaries that are over a specified limit.

Yes, there are plenty of Australian business taxes that business owners need to understand. Make sure that you learn the different rates and due dates for these taxes. Also, ensure that tax records are kept so that you know how each tax was calculated. But all in all, consider hiring a tax professional to help.

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