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Do I Pay My Income Tax Bill From My Business? December 6, 2009

Posted by Julie Duriga, CPA in Uncategorized.
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Of course, income taxes are different than unemployment taxes and from the employer’s portion of the social security tax.  Those taxes are deductible.

Income taxes are held from your own income and need to be paid from your salary bucket inside your business.  If your paycheck says that you took home 700.00, then 300.00 is really taxes.  In t heory your paycheck should be 1,000.00 to cover taxes which is normally around 300.00 to be safe.  To be safe means you are not stuck with an enormous tax bill at the end of the year.

If you are a sole proprietor or a partnership then your taxes are paid from the guaranteed payments or from your owner’s draw.  This draw can take place through a physical check written from your business or through a bank transfer from your business account to your personal account.  It is then your responsibility to remit quarterly your income taxes and your social security taxes to the IRS and to the state agencies.  Those taxes are paid from the money that was transferred to your business account.  Some business gross up their partner’s draws and guaranteed payments to cove the cost of the taxes.  Instead of bringing home $1,000.00, they might bring home $1,300.00 to cover the taxes.

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1. Jerry - January 20, 2010

I try to run my business with no profit so I don’t have to pay any taxes. Is this a good idea of should a business try to be profitable?



Julie Duriga, CPA - January 23, 2010

Hi Jerry,
I think is perfectly fine to minimize your profits to minimize your tax bill. As long as this is done legally and you have receipts to prove your deductions you are in good shape. Some business owners pay all of their profits out in their salaries which is a fine practice as well.
The only issue with this is that you would not be eligible for loans if you were seeking loans…If you are looking for investors, you might face some questions about why it is that you have no profits.

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