Frequently Asked Questions of Start-Ups:
Paying Income Taxes:
- Do we have to make Estimated Tax Payments? Answer = Will you owe $1,000 or more, will your income tax withholding be at least 90% of your 2020 income tax or 100% of your 2021 income tax (*110% for some taxpayers)
Small Businesses & Self-Employed Estimated Taxes
- What business expenses can I deduct? Answer = To be deductitble, expenses must be both Ordinary and Necessary. Check out IRS Form Schedule C for general business expenses. Note, some businesses have expenses that are unique to that business.
- How do I support the business use of my car? Answer = A log showing a description of the trip, the purpose of the trip, and the starting odometer and ending odometer is best.
Deducting Business Expenses
- Is it a Red Flag to claim a business use of home deduction? Answer = Maybe. A higher percentage of tax returns with home office deductions do get looked at closely by the IRS and with good reason, but it is a worthwhile deduction and with proper documentation, it should not be feared.
Home Office Deduction
Independent Contractor or Employee:
- Does it make a difference if we give a worker a W-2 or a 1099 Form? Answer = This is one of the most important decisions to be made. Improper treatment of a worker as an independent contractor (1099) instead of an employee (W-2) can be a costly mistake.
Independent Contractor or Employee
- What if the worker did not provide their address or social security number? Answer = The business owner is responsible for collecting back up withholding at the high rate of 28%. Obtain the information via Form W-9 prior to paying the worker.
Form W-9 Request for Taxpayer Identification Number and Certification
- How do I reimburse employees for business expenses and is it taxable income to them? Answer = It depends on whether an Accountable Plan or a Non-Accountable Plan is adopted by the business.
Employee Business Expenses