Taxes Deducted by Business Owners
The financial burden taxes place on owners that run a business are taken out of the rewards of doing business before the owner pays their federal income taxes. Business enterprise is less likely to make the owner that counts their tax pennies carefully take regrettable losses, and more likely to break even.
Every year, on the Form 1040, an owner can offset a share of the taxes paid for other federal taxes, and state and local taxes. The deductions for taxes are considered business expense deductions by the IRS.
Lower Lost Tax Money
There is a valuable difference between paying the full amount on all taxes and paying less on the federal income tax by deducting the expenses of paying the other taxes. Adding up the dollars and cents taken by governments and taking a tax deduction on the full amount, at the end of the tax year, lowers the total tax burden. Planning ahead for a full year of tax payments can make balancing the business account a lot easier by saving as much as thousands of dollars.
Employers that use property to store materials, run the enterprise, and keep the workers productive can set aside the money needed to pay their property taxes knowing that a percentage will come back when they pay a lower federal income tax bill, or get a refund. The money a government uses to make life better for its citizens does not have to stop the owner form getting a regular return on their business investment. Any tax assessed on the value of property and charged the same throughout the jurisdiction is deductible. But, there is no deduction allowed for a tax used to improve the place an owner does business and, therefore, increase the value of their property. They have to pay the full bill to help out on paying for a new street or a new water main that handles a larger volume of water.
The income taxes paid every year by corporations to state and local governments are deductible expenses. Partnerships can also lower their taxable income. Federal income taxes, of course, are not deductible. Owners that pay their business's taxes can take a business expense deduction for state taxes paid on gross income that was made directly from their trade or business.
Making a plan to deduct payoll taxes keeps the cost of using a workforce down. Both the taxes on employees the employees pay by having the amounts withheld from their work pay, such as social security, medicare and state and local income taxes, and those paid by the employer, such as their share of their employee's social security and Medicare and the unemployment taxes, get deducted from income on the federal tax return. Employers can also deduct the amount paid to the state for a fund for unemployment or disability insurance benefits.
Note, the deduction an employer can take for the wages paid to their employees is not reduced by the taxes withheld from their employee's pay for social security, Medicare and income taxes.
The Tax Count
American employers can straighten out their tax expenses by avoiding having to pay the federal government tax on money already taken by state and local governments. The tax deal then takes less out the money earned in business that is pay back for the investment in an enterprise and its workforce.
IRS, Business Expenses (2011).