For most employees taxes are pretty easy because they are already taken out of their paycheck.
It’s the business owner that has to figure out what to deduct each pay period for employees, themselves and their company.
As one of the largest payroll service providers in the country, ADP’s experts understand how difficult it is for business owners to track taxes. They’re also well aware of how financial matters can trip up any business. They created ADP Compliance Insights to provide business owners with resources that explain how all the financial puzzle pieces fit together.
Their experts advise all business owners to use tools that help track information, but stress the need for understanding tax basics. The tax rules, regulations and related expenses are completely foreign to many new business owners, but they’re ingrained into all companies large and small.
How Taxes Can Stifle Business Growth
When business owners don’t know how taxes work it can have a profound impact on growth. Today even health insurance can lead to tax issues that are costly and dictate how you run your business. Below are some of the most common tax situations that can stifle business growth.
Missed Opportunities
The green energy industry in America is a good example of how keeping up-to-date with the latest tax information can influence business growth. Tax incentives for green energy businesses can make startup and expansion more cost effective. In some cases businesses wouldn’t be possible at all without the tax incentives. If a business owner is unaware that the tax incentives exist they are missing out on opportunities to grow their business.
Not Being in Compliance
When an individual makes a mistake on their taxes the repercussions are usually minimal. When it happens to a company it can be devastating. The fines, interest and back payments can be enough to not only derail growth but shut down a business entirely. One example of this is the hefty fines involved with not being in compliance with the Affordable Care Act.
Misguided Projections
Taxes are a key component of business budgeting. If your tax estimates aren’t accurate or you miss a vital piece of information it can throw projections way off. These projections are the blueprint for production and growth, which means business owners can find themselves in dire straights when they miss the mark.
Decreases Capital Because of Shareholder Taxes
Investors, like business owners, are always weighing whether or not a decision will positively impact revenue generation. Many tax specialists have argued that shareholder taxes can decrease incentive to invest in businesses.
Tax Structures Can Shape a Business and Its Profitability
Even the tax structure you choose for your company can affect profitability and growth. Business owners are advised to choose wisely and keep future projections in mind when selecting between sole proprietor, partnership, corporation, S corporation or LLC. The choice will determine which taxes you pay and how you have to pay them.
Taxes Can Determine Where a Company is Located or Expanded
Local tax rates always play a factor in operation costs. So much so that many large American corporations were using what is called “tax inversions” to minimize expenses. U.S. companies would acquire a foreign competitor and then move their primary operation out of the country to take advantage of lower tax rates. However, in 2015 the Obama administration changed tax regulations to discourage tax inversions and make them more difficult.
Taxes Business Owners Have to Understand
Not all taxes apply to every business, but the list below is a comprehensive rundown of the most common types of taxation.
- Corporate Income Taxes
- Employee Income Tax
- Payroll Taxes (FICA Taxes)
- Income Tax on Dividends and Capital Gains
- Property Tax
- Shareholder Investment Tax
- Work Opportunity Tax Credit
- Energy Production Tax Credits
- Excise Taxes
- Sales Tax
- Capital Gains Taxes
If all this is making your head spin, don’t worry. No matter how savvy business owners are, most of them have difficulty wrapping their heads around all the tax caveats. Getting business advice from experts in the financial field is often a necessary investment that’s worth every penny.
