small business tax rate

Small Business Tax Rate Basics

It is important to distinguish the difference between expense deduction and capitalization. When you deduct an expense, it is subtracted from your taxable income. When you capitalize an expense, you are adding it to your business equity, and you pay taxes on this capital gain over time. Examples include purchasing real estate for your business and buying equipment.

The number one concern of the IRS when auditing business deductions is whether purely personal expenditures are being claimed as business expenses. For instance, you can't deduct the cost of commuting to work, because the tax code specifically says this is a personal, not a business, expense.

Small Business Tax Rate Tips

Tax Planning. Decide your strategy before you even start your business. the structure of your business affect your tax rate, consider the pros and cons of different business types

For small business tax deduction purposes, any legal or other professional fees related to your business are deductible. Legal fees can be costly, but you can take refuge from the costs by deducting them from your taxable income. As well, you can deduct fees for accountants, consultants, and professional advisors, as long as the advice is applicable to the year the costs were incurred.

Business owners are allowed to deduct start-up costs from their small business taxes, such as advertising, utilities, and office rent as capital costs. The limit for these deductions is $5,000 in the year they were spent.