Taxes can impact us in significant ways. If we file our taxes late, incorrectly, or not at all, we can face penalties, fees, and sometimes even legal action. On the other hand, there can also be positive impacts as well, such as taking advantage of tax deductions to reduce our tax burdens.
When it comes to small businesses, tax laws can affect their growth and other factors in the following ways:
A Strained Cash Flow
If you haven’t hired a tax accountant for small businesses to help you manage your tax payments, you might experience a severely strained cash flow. When you have to set aside your hard-earned money to make obligatory tax payments, that’s money you could have used for business development activities and everyday operations.
While a small business tax accountant won’t be able to relieve you of your tax obligations, they can ensure that you’re only paying as much as you have to.
Tax Deductions
Not all tax laws need to have a negative impact on small businesses. They can also have a positive one. As a business owner, you can use tax deductions to reduce your tax payments.
For example, running a home-based business means you can deduct expenses related to furnishing and maintaining your space. How much you can deduct depends on the size of the area you use.
Other frequently used deductions include business insurance, repairs and maintenance, charitable contributions, and bad debt. You can even claim for business gifts and, often, even business entertainment.
Tax Incentives
Alongside tax deductions, many small businesses can be eligible for tax incentives that have the potential to help with business growth. For example, the US Department of Labor offers a Work Opportunity Tax Credit. If you hire individuals from specific groups who face barriers to employment, you might qualify for this credit.
The Disabled Access Credit is another desirable incentive. Your small business can receive a credit of up to $5,000 for the expenses incurred for providing access to persons with disabilities.
Sales Taxes
Sales taxes can vary between states. They can be reasonably straightforward to understand if you only sell in one state. However, the same can’t always be said for businesses operating in multiple states. The complexities of running businesses in multiple jurisdictions can be overwhelming for the average small business owner. As a result, they might be far less motivated to expand their offerings and grow their business.
Tax Filing Deadlines
The IRS has firm tax filing deadlines. If you fail to meet them and don’t file for an extension, you can be at risk of having to pay costly penalties. However, many small businesses struggle with meeting these strict deadlines. They might not have enough employees to focus on this time-intensive task or lack the understanding to file their taxes correctly. If you’re subsequently made to pay a penalty, you must divert much-needed funds away from your business.
Global Operations
Technology makes it much easier for businesses to operate on a global scale. The tax system often doesn’t. When you’re engaged in international trade, there can be tariffs, value-added taxes, and import and export regulations to consider. The daunting prospect of meeting your tax obligations might make you less likely to expand your offerings overseas – potentially stunting your growth.
Tax laws can be complex and frustrating, but not all business owners understand how impactful they can be for business growth – both positively and negatively. The more you know about tax laws, the easier it might be for you to fulfil your tax obligations and experience growth simultaneously.
