CALCULATING TAXES FOR YOUR BUSINESS
February 16, 2021 - Douglas Myser
Calculating taxes for your business. Tax liability is the amount of tax that you owe a particular tax authority. While the most common tax authority is the IRS, small businesses can also have a tax liability for other tax authorities including state and local jurisdictions. What is tax liability ? Liabilities represent money that your business owes: therefore, your tax liability is the amount of money that your business owes various tax authorities. Tax liability should always be recorded in your general ledger as a current liability because in most cases, the liability will need to be paid within a year. Your tax liability will vary depending on your business legal structure. For example, a self employed individual who files a Schedule C at year's end will pay taxes at a different rate than a C corporation. While tax software does not manage or record your tax liabilities, it can be helpful when it's time to pay quarterly taxes or file your yearly return. Calculating taxes for your business.
Why do I need to know my tax liability for my business ? Tax liability is like any other liability. You need to know how much you will owe for the year to ensure that you have the means to pay it. For example, if your rent payment is $1000 a month, you know that you have a rent liability of $12,000 for the year, even though you expense the rent monthly. It's important to calculate your tax liability for several reasons, but one of the main reasons is that it allows you to properly budget for the expense. Calculating your tax liability can also help you make more targeted business decisions or take a closer look at your expense deductions. Finely, knowing the tax liability for your business helps you have more accurate financial statements. If your business is a C corporation, you'll be taxed at the normal federal corporate tax rate, which is 21%, as well as your state tax rate, which varies. Calculating taxes for your business.
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