Understanding Your Business Tax Plan: Part 2 of 3

There are so many business taxes that it is important to understand the general categories of business taxes and how they will affect your business. For more information on the five states to form your business with the lowest amount of business taxes, see our most recent blog post on the best five states with no to lowest business taxes.

Your Core Calculation = Business Income Less Itemized Deductions

Clearly to determine your business income tax is the business formula of subtracting your itemized deductions from your gross business income.  So essentially, your total of gross receipts, deposits, cash flows, or any other revenue otherwise collected by the business will be added together and then reduced in appropriate proportion from your total sum of valid itemized deductions/ expenses.

Your Categories of Calculations:

• Gross Sales Revenue: As mentioned above, this is your total of gross receipts, deposits, cash flows, or any other revenue otherwise collected by the business.
• Miscellaneous Business Income: This is where a business specific tax professional comes into the picture as you must be report miscellaneous business income on the relevant different sections of your tax return.
• Goods Sold Costs: Again as just mentioned, your business tax professional will need to calculate this if indeed your business uses inventory, so that you can finalize the business income section of your tax return.
• Deductions: Every tax and legal professional alike agrees that goal number is properly deducting expenses to make a massive difference in the bottom line in taxes. The largest most common business deductions are capital expenditures, start-up, travel, vehicles, meal and entertainment expenses, business gifts, salaries, insurance, and home office deductions.

Claiming tax credits

Tax credits come with sets of very complicated rules, which your tax professional must follow in order to legally claim them. Tax credits are stronger than tax deductions because they are debited straight from your tax bill. Tax deductions are deducted from the business income on which your tax bill is based upon. Tax credits are only available for certain scenarios and industries so be sure to check for them on a real time basis as they do change from year to year, state to state, etc.