Making Sense of Your Small Businesses Tax Burden

Owning and operating your own small business is as close to financial independence as you can get without being rich. Of course, most would prefer being rich, but the majority of us never will be rich. Instead, a desire to succeed and live healthier happier lives than previous generations motivates the American psyche to work hard.

Conversely, hard work goes hand in glove with paying taxes. That dreaded “T” word that all small business owners must handle. From paying your own taxes because you’re an independent contractor to withholding taxes from your handful of part-time employees, owning your own business takes considerable accounting services. 

This is why hiring an accountant is the best option for small businesses at tax time. Every year, the accounting professionals at Peter B. Scala and associates get ready for an influx of requests for tax help. It’s no wonder! The American taxation system is large and at times confusing to the average small business owner. 

Worse, the tax code is full of scenarios where specific deductions schemes work and some don’t. Fortunately, the financial experts at Peter B. Scala and associates are skilled at understanding and interpreting the cumbersome U.S. tax code. The professionals at Peter B. Scala and associates will tackle your taxes head-on for maximum tax savings. In the meantime, we thought it would be helpful to list some of the complicated aspects of taxing small businesses. 

Before getting into business taxes, we should address what it means to be a “small business” in the U.S. Broadly, the IRS views business size from a monetary perspective. The more money a business makes and pays taxes on, the bigger they are. This is true for one employee (an owner) or a business with one-hundred employees.

What is a Small Business?

The term “small business” seems to be ingrained into the collective American psyche as a way to achieve the American dream. However, defining a small business is not as straightforward as you would think. The federal government isn’t concerned (in most cases) about how big your business is in terms of employees. The IRS wants taxes paid on the income that that business makes. 

Paying taxes is an American nemesis all businesses large and small must deal with. But the term “small business” confuses some business owners. Some believe the IRS will give them tax breaks for being a small business. However, the IRS doesn’t define a small business. So what now? How does a business owner with a handful of employees get the same or equivalent tax loopholes that large corporations enjoy? 

One way to get the best tax bill possible is to seek advice from someone who understands the U.S. tax code from the perspective of a business owner. The professionals at Peter B. Scala is good at getting into tax details and finding tax laws that are helpful to paying taxes. Give them a call and discover what your tax burden can be. Our team looks at the law, not what others say about small businesses. 

Small Business and the SBA

Through the Small Business Administration (SBA), the federal government refers to U.S. tax laws to help businesses flourish. According to its mission, the SBA was created to help businesses compete with large corporations. We can infer this because the mission statement switches from “business” to “small business.” 

This inference is a clue to how tax experts like Peter B. Scala help those that own businesses. To counter the loopholes large corporations find in the U.S. tax code, the SBA helps “smaller” businesses compete with “larger” ones. More precisely, the SBA provided incentives for what it claims is a small business. 

This interpretation gets support from the original 1953 mandate set by U.S. policy to create the SBA. The 1950’s was a decade of great American economic expansion. Policymakers believed local businesses could sustain economic growth at the local level. In the seventy-plus years since the creation of the SBA, that inference was, and continues to be true. 

Unfortunately, things get complicated from here. The SBA does define a business size for the purposes of meeting its mission. Of course, this too is complicated as they use a detailed Table of Standards to categorize business size. This table refers to the Bureau of Labor Statistics (BLS) for how to determine employee numbers in ratio to business receipts. The type of business in a specific industry is the primary factor. 

In other words, 1 person making 10 million dollars a year can be a big business. 100 people making minimum wage can be a small business. The SBA, BLS, and the IRS all work together to help businesses of all types and sizes contribute to the economy. Once a business owner understands this relationship, the confusing aspects of paying business taxes become clearer. 

A common tension point is an interaction between the IRS and the SBA/BLS. While the IRS is the law, they publish a regular guide to small businesses. Given the recent influence on small businesses from the pandemic, Congress has stepped in and published a comprehensive summary of tax laws that benefit small businesses.

Title 26

Everyone, even the IRS, must follow U.S. law, or what we will refer to as U.S. Code. That said, tax experts like attorneys and accountants follow specific laws as listed in U.S. Code when they give advice. The average citizen might have trouble reading the actual U.S. code, let alone give professional interpretations about the law. 

Formerly, the official name in the U.S. Code is 26 U.S. Code Title 26–Internal Revenue Code. Incidentally, the mandates for creating both the SBA and the BLS are also in the U.S. Code. It takes professional CPAs like those at Peter B. Scala and associates to interpret how Title 26 reconciles with the SBA and the BLS.  

Conclusion

With PB Scala doing your small business taxes, you’ll take advantage of tax breaks designed to help small businesses. Unfortunately, the tax code is confusing for all taxpayers. Peter B. Scala will help wade through the confusion.