Accounting Money

Understanding Paying Taxes for Small Businesses

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Paying your personal taxes is one battle; paying tax on your business is a whole other challenge. Knowing if you are paying the right amount of tax on your business is a source of stress for many business owners; too much, and youโ€™re losing out on precious dollars, but pay too little and you could be charged. Understanding how to calculate corporation tax and how to take advantage of certain processes will allow you to rest assured that you are paying the right tax, without overpaying or underpaying on any bills.

How Is Corporate Tax Different from Personal Tax?

When you pay your personal taxes, these are calculated based on your income bracket. If this bracket changes, your taxation increases too. There isnโ€™t much to it – you follow federal guidelines and register your income.

However, when you pay tax on a business, things are slightly different. Calculating your businessโ€™ overall earnings enters you into a tax bracket, just like regular income tax, but these brackets are different depending on the country in which your business originates. In the United States, the median tax rate shifts from year to year (right now it stands at 21 per cent).

How Do Companies Avoid Paying Tax?

Countries such as Fiji are used by corporations to avoid paying high corporation tax; that is, by registering their business in that country, they pay far lower taxes than if they registered in the United States, even if they operate mainly here in the US. This is a sticky subject when it comes to ethics; using tax havens can be done legally, but is not seen as honorable business practice and can be investigated by the US government.

Other businesses utilize all that is available to them to avoid paying high tax in their own country, such as applying for tax credits. This is totally legal and, in fact, is pretty smart business. If you are unsure if your business is eligible for tax credits, hire a federal tax credit consultant who can help you with your query.

How Do I Calculate My Business Tax?

If you run a small business and are worried about paying the right amount of tax, you might be looking for surefire ways to ensure you are doing things correctly. Here are a few ways to calculate your business tax.

  1. Hire an accountant. The easiest and most surefire way to calculate your tax as a business is to hire a qualified, insured accountant who will perform the calculations on your behalf. You will need to provide them with the income information from the last fiscal year, as well as your expenses including payroll, for them to be able to accurately calculate your tax.
  2. Perform the calculations yourself. For small businesses cutting costs due to the pandemic, hiring an accountant might be too expensive. If you are looking to do this work yourself, ensure you research how to do this online and set aside enough time to do this properly.

Paying tax is a vital part of our society; use this helpful guide to ensure you are doing all you need.

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