Every business has to pay taxes correctly and timely to the appropriate authorities. Since firms cannot avoid these obligations, they constitute an essential part of a firm's expenses. However, every business aims to keep these figures to the minimum legally. The bookkeeping and accounting services facilitate record-keeping and financial statement presentation through which further calculations are possible. Firms compute taxes based on the tax laws, and these values differ from financial statements. Thus, professional expertise is necessary to undertake these operations and ensure the numbers for calculations and further procedures are correct.
However, bookkeepers and accountants are not just responsible for computations. A good accountant adds value to business functioning by introducing efficient practices. It involves optimizing the tax calculation and payment procedure and minimizing these legal liabilities. Some unprofessional companies might go over the unethical route of reducing tax obligations by reporting less income. However, outsourced bookkeeping services ensure companies provide correct numbers for computations and utilize legal tax credits, deductions, and refund options available through the IRS schemes and laws. Firms can get refunds depending on their entity type, tax structure applicable, etc. It is different from individual tax refunds and credits.
Tax credits are available for deduction in taxable income or tax amount, thereby minimizing the tax liability. Firms can receive refunds when they pay higher taxes than due on their return. The different entity types in the US are as follows:
· Sole proprietorship- These are single-business owners who pay taxes through individual income tax returns by reporting the incomes and expenses in Form 1040 in Form Schedule C.
· Partnerships- Partnership agreements are between two and more partners and don't need incorporation. They file Form 1065 and issue Form K1 to partners. The income and tax get reported in the individual partner returns.
· S-Corporations- These corporations pass the tax obligation from the business to the shareholders. Such corporations file Form 1120-S and issue Form K1 to every shareholder. The shareholders, in turn, report the income and tax payment on individual returns.
· Limited Liability companies- These business owners report income and tax returns on their returns 1040-S, including income from other sources. They can receive refunds only if the total payments and withheld taxes exceed the tax liabilities.
Thus, only a C-corporation structure is eligible to avail of tax refunds. It is because these structures distinguish the identity of its shareholders from the company. These corporations pay taxes directly to the IRS authorities through Form 1120.
The type of taxes paid by businesses also influences the refund process. It involves:
· Income taxes- Only C-corporations receive refunds on income taxes. The rest of the structures have individuals receiving refunds on their tax returns based on their total income.
· Payroll taxes- Irrespective of the entity type, firms can receive refunds on payroll taxes withheld or paid if they have overpaid accounts.
· Sales or excise taxes- Firms can receive refunds on taxes overpaid to the state or municipal authorities or revaluation of the property.
A qualified bookkeeping and accounting services provider is responsible for guiding the business in availing of deductions and refunds correctly. Moreover, the business taxation procedure is complex and challenging for a layperson to understand. Thus, involving an expert helps keep troubles at bay.
IRS offers several schemes to reduce tax obligations. Several factors can help firms maximize their tax refunds and minimize tax obligations without falling into legal trouble. Moreover, firms can benefit significantly from reviewing their accounts regularly.
