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Can Your Small Business Receive a Tax Refund?

By February 28, 2023Tax Advice
Small business owner happy looking at paperwork tax forms filing receive a tax refund

Everyone loves to receive a tax refund and, as a small business owner, you may be wondering if it’s possible for your small business to receive one. The simple answer is yes, it is possible for a small business to get a refund. However, it’s not guaranteed and may not be likely depending on your specific business. In order to increase your chances, you need to understand how tax refunds work and how you can increase deductions to decrease income.

If you have a business in or near Cincinnati, let Orcutt & Co help with your financials. We are a small business, so we understand your needs. Let us help you be profitable, save money, and get a tax refund.

In this article, we’ll explain what you need to know about business taxes and how to get your refund this year.

Business Tax Refunds Explained

In order to get a business tax refund, you need to pay the IRS more than your total tax bill. You’ll need to estimate the amount of tax you may owe and pay that plus more.

Your income is just part of your taxable income. Therefore, you must add your income as well as your self-employment tax (for Medicare and Social Security) to any other income to get a total.

Tips for Increasing Your Chance of Receiving a Business Tax Refund

There are a few tax-cutting strategies that you should take advantage of to increase your chance to receive a tax refund. We’ll look at those below:

Deduct Startup Costs

When you start a new business, you’ll have startup costs. You may be able to take some of those costs as deductions. According to the IRS, start-up costs are considered capital expenses and must be spread out over several years. However, it is possible to deduct some within your first year- up to $5,000 for general start-up costs and up to $5,000 for organizational expenses.

Make Estimated Tax Payments

Since income tax is not withheld throughout the year, business owners must make quarterly tax payments. Typically, the dates are the 15th of April, June, September, and January.

Take some time to calculate your estimated income and add self-employment taxes to find out your total tax liability. Then, make payments each quarter.

Adjust Withholding from Employment

If you or your spouse has income from working as an employee, adjust your withholding to have more taxes taken out throughout the year.

Take Advantage of the QBI

Another way that you can increase your deductions is to take advantage of the QBI, or Qualified Business Income, deduction. The IRS allows business owners to take a 20% deduction on their business net income each year in addition to your normal deductions on your personal tax return. There are some caveats to this deduction, so consult with a professional first.

Increase Your Chances of a Small Business Tax Refund by Planning

There are some people who use their tax refund as a way to force themselves to save money. They purposely pay more throughout the year so they can get a decent refund at tax time. However, the problem is they don’t have access to that money until they get their refund. Instead, the IRS is using it for up to 12 months and taxpayers don’t get any interest on it.

Taxes are a balancing act. You want to pay enough to avoid fines and penalties, but you don’t want to pay so much that you have a huge refund or get charged additional fees. Work with a professional like Orcutt & Co to help you with your tax planning.