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Central Alberta Regional Innovation Network

3 Important Things Every Entrepreneur Needs to Know About Taxes

As an entrepreneur, taxes can be a daunting topic to tackle. Correctly filing taxes can be one of the most significant challenges entrepreneurs face every year, and not knowing all of the nuances of the tax code can lead to costly mistakes. Whether you're just starting or have been in business for years, it's crucial to have a good understanding of the tax laws that apply to you to make the most of your deductions and minimize your liabilities. Here are the three most important things every entrepreneur should know about taxes.

1) Deductible expenses:

As an entrepreneur, there are many expenses that you incur while running your business. Knowing which expenses are tax-deductible and which are not can save you a lot of money. Some standard deductions that entrepreneurs often miss out on include:

  • Home Office: If you have a designated workspace in your home that is used only for business, you can write it off on your taxes.

  • Business-Related Travel: Any travel costs related to your business (including airfare, hotel rooms, meals and any other expenses related to travel) are deductible.

  • Business-Related Meals: Business meals that occur while you are entertaining clients or potential customers are also deductible.

It's essential to keep track of all your expenses to avoid missing out on deductions on your tax return. Tracking can be done manually using spreadsheets, or you can use a variety of software tools and apps available that make it easy to record and categorize your expenses. Many of these tools will also organize your costs.

2) Understanding types of taxes:

There are different types of taxes that entrepreneurs need to be aware of. Income tax is one of the most common types, where you are taxed based on your earnings. Besides income tax, there are other types of taxes, such as sales tax, property tax, and employment tax. It is crucial to have a good understanding of these different types of taxes and how they apply to your business. Consulting with a tax professional can help you navigate through the tax codes and ensure you are paying the correct types of taxes for your business.

3) Plan for estimated taxes:

As an entrepreneur, you are responsible for paying estimated yearly taxes. It's essential to plan so that you're aware of when tax payments are due. Make sure to set aside enough money to cover your taxes. By doing so, you can prevent late payment fees and interest charges on underpaid taxes.

In conclusion, understanding tax laws is a critical aspect of being an entrepreneur. Deductible expenses, tracking expenses, understanding the difference between contractors and employees, and planning are just some things you need to be familiar with. By being aware of the nuances of the tax code and staying up-to-date on changes, you can file your taxes confidently and save money in the process. If you are ever unsure, ask! Feel free to reach out to a tax expert to make sure you're on the right track.

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