Running a small business is rewarding, but it definitely isn’t easy. Add business tax to the mix, and it can quickly become chaotic. With so many tax terms, fluid updates and changes to tax codes, filing deadline extensions, and sales tax variants by state business owners can feel like they need a PhD in tax language to ensure they don’t miss the mark. To get you off to a good start, I’ve listed 14 business tax-related terms that are helpful, particularly during tax season.
The accrual method, also called accrual basis, is a form of accounting that tracks income and expenses as they occur. This means that it is recorded before any actual money changes hands. For example, if something is ordered, the transaction is accounted for in a bill before the bill is actually paid.
This refers to the change in the value of a particular asset, to help determine if there’s been a gain or loss when you sell.
Amount realized refers to what you bring in from a sale minus any expenses, fees, etc., and is used to assess any capital gains or losses for taxes.
Through a carryback, a business can use a net operating loss and put it toward a prior year’s tax return and obtain a tax refund.
A carryforward allows business owners to use net operating loss deductions in future tax years.
The cash method is a form of accounting that tracks revenue and expenses only when cash is actually received or spent.
Estimated tax refers to the estimated amount of tax you are required to pay quarterly, in lieu of regular payroll tax withholding. Think of it as a tax prepayment plan.
Excise tax is a type of tax that is imposed on certain products such as alcohol, soda, and cigarettes.
Gross Receipts Tax
Gross receipts tax is a type of tax that is based on all revenue sources that is charged by some states, in place of sales tax.
Net operating loss
When there are more expenses than there is income, businesses have a ‘net operating loss’. This net operating loss can be used as a carryback to get a refund on previous tax years or a carryforward and used as a deduction in the future.
This refers to the tax put on employees’ wages. A portion of this tax is deducted from an employee’s check and the other portion paid directly by employers.
Self-Employment Tax refers to the 15.3% that small business owners pay to cover Social Security and Medicare benefits.
Standard Mileage Method
Under the Standard Mileage Method, business owners deduct a specific amount per mile as part of their car-related business deductions. The rate for standard mileage in 2021 is set by the IRS at 56 cents.
A SEP IRA is a Simplified Employee Pension Individual Retirement Account that is for self-employed people. Self-employed taxpayers can contribute to a SEP-IRA and deduct contributions.
What other business tax terms are you curious about? Drop me a line at info@ComplYantapp.com.
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Shiloh Johnson is a long-time CPA and founder of ComplYant, a technology platform offering business owners and entrepreneurs a simple way to manage tax rules and requirements.