One of the biggest financial mistakes small business owners make is not planning for their taxes. If you are a new franchise owner, you should start your process early.
These are some tax planning strategies you should consider.
Your local community, state or the federal government may provide tax incentives for new businesses. For example, if your employees receive tips, you may receive a FICA tip credit. In addition, you could gain Work Opportunity Tax Credits for hiring individuals who may find it challenging to find a job. Your local jurisdiction may also give you property tax incentives.
Investigate prior property tax rates and the community’s property evaluation process. Then, research local bonds. If you plan to or have made renovations to the property, estimate the increase in property value. Use these values to estimate your annual property taxes.
As a business owner, prepare to pay self-employment taxes. A tax professional can walk you through calculating this tax, but it typically involves calculating your net earnings and multiplying it by the self-employment rate. These funds pay for your Social Security and Medicare.
State and local taxes
Your business may also need to pay state and local taxes. You can find your rates by contacting the secretary of state’s office and your local tax accessor. Like your federal taxes, your local and state rates depend on your income level.
If you live in one of the 45 states that have sales tax laws, you will collect these funds from your customers when they make a purchase from you.
As you calculate the different taxes you expect each year, build a budget that allows you to save a portion of these funds every month.