March 2, 2024

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Navigating Tax Changes – What Business Owners Need to Know

Manage a small business requires juggling numerous responsibilities. From developing products and services, finding employees, satisfying customers’ satisfaction to meeting tax obligations – there’s much to keep track of in running a small enterprise successfully.

Staying abreast of changes to the rules can help you avoid costly errors, so keeping abreast is vital to staying safe. Here are a few key changes you need to know about.

1. Taxes on Intangibles

Although intangible assets take up no physical space, they provide immense leverage for your business. Such intangibles include trademarks, patents and copyrights – you can deduct their cost annually in order to lower taxable income and save tax.

However, for tax purposes it’s essential to distinguish personal expenses from business expenses in order to prevent an IRS audit if they suspect you of conflating them. Blake advises opening separate bank and credit accounts.

Understanding the value of intangible assets will also have a bearing on taxes when selling them, according to Bhansali. Valuing intangibles is complex; for best results seek professional help and show that each intangible has both readily ascertainable value separate from goodwill as well as useful life, Bhansali advises.

2. Taxes on Real Estate

The Tax Cuts and Jobs Act made changes to how business owners are taxed, shifting pass-through entities like partnerships and single-member LLCs to be taxed based on their share of business net income rather than an entity’s total net income. Furthermore, the act reduced corporate taxes from 35% to 21.1% as well as creating first-year bonus depreciation deductions for equipment or property purchases.

Local and state governments use property taxes to finance services like school districts, police and fire departments and road construction. While the terms “property taxes” and “real estate taxes” may be used interchangeably, they’re actually two separate concepts; real estate taxes only pertain to land and structures attached to it (like houses) while property taxes may apply to cars and boats as well.

Filing taxes as soon as possible to avoid incurring the IRS’ failure-to-file penalty (which is typically 10% of what you owe), which applies if you delay filing them or seek an extension to file. You still owe payment on time!

3. Taxes on Capital Gains

When selling assets that increase in value, such as shares of stock or gold bars, any gains are subject to taxes known as capital gains and may be taxed at different rates depending on how long you held onto it.

Businesses owners can reduce their tax liabilities by selling assets at rates that trigger the lowest possible tax rates, which requires careful planning. This outcome depends on whether their entity is structured as a pass-through entity (LLCs, partnerships or S Corporations) or C Corporation.

Notably, only assets sold or “realized” are subject to capital gains taxes while any investments that remain unsold and unrealized remain tax-free. This current system is inefficient and needs reform; proposals by Joe Biden, Cory Booker, Julian Castro and Elizabeth Warren would help address it by moving to an accrual system where capital gains taxed on an ongoing basis rather than when realized.

4. Taxes on Dividends

Dividends are payments companies make to shareholders out of company earnings. The amount investors receive depends on a company’s earnings and profits and can be taxed either as ordinary or qualified income tax rates; investors who receive qualified dividends typically pay lower taxes compared to investors receiving interest income through money markets, bank CDs or bonds.

Corporations typically pay a flat tax rate of 21% on their profits, which is lower than individual income tax rates which range from 22% to 37%. But by keeping profits within their corporate structure rather than dispersing them as dividends to shareholders, corporations could save on taxes by keeping more profits within.

As a business owner, it’s essential to remember that the IRS taxes dividend income. Before making decisions that might alter your tax situation – for instance, by mixing personal and business expenses together into one account or credit card account which could lead to audit and penalties from the IRS – be sure to consult with both tax and legal advisors first.