Bank finance articles and tips

If you are a business owner or self-employed, you probably are aware that you have to pay tax. While no one enjoys paying tax, it is a legal requirement that cannot be wished away. Whether you are a business owner or self-employed, you are obliged to pay federal, state and local taxes.

Apart from these, you are also required to pay employment tax. For the business owner, employment tax includes income tax, social security tax, medical insurance tax and other taxes such as federal unemployment tax (FUTA) in the case of the United States. Self-employed persons also pay employment taxes such as social security and medical insurance, similar to what business owners pay.

To pay employment taxes, whether as a company or self-employed, you will have to withhold some percentage amount from the paychecks of your employees and add some other percentage from the business. This means the tax payment is always contributed by both the employer and employee at the business level.

But as a business owner or self-employed person, taxes can affect the finances of your business. Planning for them is therefore a step in the right direction. It can save you some good amount of money and if you neglect the planning process, you do so at your own detriment.

Here are some employment tax planning tips that will help you to save a lot:

1. Understand the Employment Tax Law
The first step in the planning process is to understand the law; what it entails, when to take advantage of it and your overall employment tax obligations. If you don't know the law, it can work against you. As you may already know, ignorance is not an excuse. Your understanding of the existing tax laws will help you plan in accordance with the law.

2. Learn How Employment Taxes are Calculated
To take employment tax planning serious, you will need to know how to calculate your liabilities. For companies, deductions from employees as withholding tax can be straightforward. But that may not be the case for self-employed people. If you are self-employed, you should learn how to calculate quarterly estimated tax payments by yourself using IRS Form 1040 - ES. This normally covers your self-employment liability tax and federal income tax. It is advisable also, to make state estimated tax payments. If you fail to do so, you may be liable for interests, penalties and consequently, a huge tax bill at the end of the year.

3. Take Advantage of all Business Deductions to Lower Your Taxable Income
This is very important especially if you are self-employed. If your business is entitled to any business deductions, take advantage of them. This is because deductions lower your taxable income. For example, there are a number of business expenses that can be deducted; office equipment, furniture, utilities and supplies. There are however two main conditions that need to be fulfilled before the deductions can take place. The first is that the business expense must be ordinary, i.e common and accepted in your business or trade. The second is that it must be appropriate and helpful for your business or trade.

With these few employment tax planning tips, you can save a great deal of money for for your business. If you are unsure of how to move forward in your business, having a good accounting service at your side will help you to navigate through these waters correctly.

Eddy Hood
Ignite Spot Accounting Services
http://www.IgniteSpot.com

By Eddy Hood