It would be fair to say that the United States is a tricky beast when it comes to tax – and this is simply emphasised if you opt for a DIY approach. In other words, while the likes of Accounting Today and other programs can help you immensely, life as US taxpayers is difficult as most people just don’t have a “simple” set of accounts to file.
Barry Bulakites is one man who knows this all too well. For the same reasons that we have documented, he always advises businesses, regardless of their size, to seek accounting professionals to help them.
Bearing all of this in mind, we are going to take a look at the tax system in much greater detail through this post. We will now look at some of the top myths that arise from it, and ultimately confuse all of those small businesses in the country.
Myth #1 – All businesses should be companies to reduce tax
In some ways, it can be quite prestigious to own a “company”. However, before you rush into this decision, take a step back for tax purposes.
Sure, it might be easy to set up a company, but whether or not it is going to save you money from a tax perspective is a different matter in its entirety. Let’s not forget that companies pay a fixed rate of tax, which is 27.5% for the majority in the country.
The significant part of this is that regardless of how much your business is making, you will be paying tax on it. If you just make $1, you’ll pay 27.5 cents. Ultimately, there are no tax-free thresholds, which is much different to the plight of a sole trader. Sole traders do have tax-free thresholds and while their tax can eventually rise to higher levels, for the time being it is cheaper to go down this route.
Myth #2 – Cash payments don’t have to be recorded
This next myth will hopefully have been debunked in most minds anyway, but let’s clarify. In short, cash payments always have to be accounted for. Even if the vast majority of your income comes through cash, this needs to be documented and needless to say, you’ll be paying tax on it.
Myth #3 – You can just change structure when you start to make more money
This links to the first point that we made through this article. Sure, it’s true, you can change your company structure at any point. The problem that we are trying to highlight is that this can be expensive to do. You will have to pay a whole host of fees, some of which will probably be to an accountant, coincidently.
As such, you need to approach your business with a realistic outlook. Have a rough understanding on the profit that you will be making, and make an informed decision on what company structure is going to work best for you.