Gay owned businesses have been on the rise for quite some time; the National LGBT Chamber of Commerce (NGLCC) currently reports to represent businesses that generate more than $1.7 trillion in economic impact. That’s right, gay owned businesses are boosting the economy. But making money means paying taxes, and tax season is upon us. Don’t skirt on paying the man – it will only cause problems down the line. Here are 6 tips to help LGBTQ business owners file their taxes.
1. Choose the best business designation for your enterprise
If you’ve already started a business, you’ve probably already considered how to structure your business, and what type is best for your needs. Most new business owners only consider legal reasons when structuring their business, but different structures also affect the taxes you have to pay. Here’s a brief summary to show the importance of choosing the correct corporate structure.
- Sole proprietorship You are the outright owner of an unincorporated business, meaning there is no difference between you and the business. You receive all the profits, but you’re also responsible for paying the taxes and expenses the business accrues.
- Partnership Ownership of the business is split between various parties; taxes and expenses are to be paid according to an agreement between the partners.
- LLC Your business is a separate entity from yourself, and you are protected from personal liability related to the business’ expenses. The businesses profits are not subject to corporate taxes, but you have to pay self-employment taxes.
- S corporation This structure allows for profits and losses to be passed to the shareholders instead of the business as a means of avoiding double taxation. S corporations don’t have to pay corporate taxes in order to avoid double taxation.
- Corporation This structure protects shareholders by separating them from the business’ liability and debts.
2. Stick to a single accounting method
The primary purpose of any business is to make money. You want to make sure that you are keeping track of how much you’re making; good accounting is key to any business. There are multiple accounting methods, but two types, cash and accrual are the most popular.
- Cash This is the most common method used by small businesses and self-employed individuals due to its straightforward nature. Although it’s called the cash method, it refers to any type of direct monetary payment. You as the business owner account for the income of money you’ve received during the tax year.
- Accrual This method requires you to account for the income you earned during the tax year even if you haven’t yet received it. As an example, if your organization completed a service in 2019 but doesn’t expect to receive payment till 2020, you will report this income even though you haven’t received payment. The point is that you report all expenses and payments in which you’re reasonably assured of the accurate costs.
3. Learn about tax breaks
There is a large array of available tax breaks that you definitely want to take advantage of. Work with your accountant to see what tax breaks you qualify for; the benefits can pile up fast.
4. Keep up with your accounting year-round.
By doing your accounting on a regular basis, as a business owner, you’ll always know your financial position, be on top of your payables and receivables, and have better insights into your business. It also makes tax time much easier and faster.
5. Automate with software
Accounting software can help you manage your business finances and share data with your accountant. This is especially important at during tax season. Taxes can be automatically filed online, meaning you can get your tax refund faster.
6. Hire a pro
Taxes can be very complicated, and not understanding the rules can lead to your business having to pay more money than it should. You also don’t want to make a mistake that can end up causing you future problems. A professional may cost a little bit more but think of it as a business expense.
Take Your Business to the Next Level
If you’re in need of more business and account advice, consider reaching out to HomoCulture’s very own accountant, Debrah Burleigh & Associates. It is a firm that specializes in servicing LGBT owned businesses. Request a consultation today.
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