FAQs for a new business owner.

Taxes are an unfortunate reality for every new business, and the IRS isn’t really known for making things easy to understand. We’ve asked Dennis Dane from Dane Tax Solutions to help answer some of the most common tax questions from new businesses owners like you.

Do I have to file my taxes quarterly?

Most businesses are required to file some sort of tax return quarterly. Sole proprietor businesses typically need to file estimated quarterly tax payments. Corporations need to file quarterly payroll tax returns. There are some specific cases where sole proprietors may not need to make estimated tax payments. Talk to a tax professional to find out what is required for your specific business and to help you plan your tax payments accordingly, or learn more about our Small Business Tax Package.

What can I expense?

Any item purchased and used for your business can be expensed, but not all expenses are treated equally. Meals and Entertainment expenses are limited to 50%. This means that for every $100 you spend on meals and entertainment you may only deduct $50 from your taxable income. Business gifts are limited to $25 per person. Furniture, equipment, and other larger items (computers) can either be expensed or depreciated (expensed over the life of the asset). Some businesses choose to depreciate these types of assets in order to spread the tax benefit out over the life of the item instead of receiving it all in the year of purchase. A tax professional can help advise you on how best to manage your business expenses.

Can I expense mileage?

Yes, you can expense your business mileage. If you have a home office (room only used for business) you can deduct the mileage starting from your home for any business-related travel. If you have an office outside the home, your daily drive to and from the office is not deductible. The mileage from the office to meetings or for other business purposes (ex. picking up office supplies) can be expensed. The mileage rate for 2012 is 55.5 cents per mile. It is important to keep a mileage log of where you went, who you met with, and the purpose of the meeting or trip.

How can I deduct my home office?

A home office must be used 100% for business. This means the office cannot be used as a spare bedroom or have any other use. To deduct your utilities and other household expenses you would take the square footage of the office and divide it by the total square footage of your home. Take that percentage to calculate the expense. Direct expenses to the office, like painting or wiring the office for Internet access, can be fully deducted.

Do I need to open a separate bank account for my business?

Yes. This will help in tracking your business income and expenses. If your business was audited, the IRS would rather see you have a separate bank account. A separate account also makes it much easier to track both your income and expenses in one place.

What is Self-Employment Tax?

This tax is figured for businesses that are taxed as sole-proprietorships. The tax is calculated using the net income of the business. The tax rate for the self-employment tax is 15.3%. Please note that this tax is not part of your Federal and state (if there is tax in your state) income tax. Those will be shown separately on your income tax return.

What tax forms do I need to file?

If you are a Partnership you will need to file Form 1065 where each partner would receive a Form K-1. The income or loss shown on K-1 will flow to the partner’s personal income tax return (losses deductible are determined by the partner’s basis).

An S-Corporation will file Form 1120S and each partner will receive a Form K-1 to report the income or loss on their personal tax return.

A C-Corporation will file Form 1120 where the corporation will pay the tax on the income, not the partners.

For help with filing the proper tax forms, please see a tax professional or use our Small Business Tax Package.