Tracking taxable income and ensuring compliance with requisite tax forms can be an ongoing struggle with the pressures of running a business. On top of everything else, a small business owner also needs to make sure that he files his appropriate personal income tax on the earnings they paid themselves from their company versus the business tax return from company income earned.

Income tax filings

It is difficult enough to properly file income taxes, but with all the capital expenses a small business owner makes, a sizable tax bill can be even more challenging without seeking loans. Without enough money to pay for taxes on profits, this is a particularly pressing issue for small business owners who have spent their remaining funds on capital expenditures for the year.

Part of the issue for companies of this size is the amount of effort to collect sales taxes from customers. In each state that a New Jersey small business conducts sales, the owner is required to collect the sales tax as applicable to the state. These taxes cannot be written off on returns because sales taxes are considered personal liabilities to the owner of the business.

A common misconception of collecting sales tax is that the revenue earned from those sales do not belong to the company. These earnings need calculation and paid to the federal and state governments.

Structure the business properly

Small business owners in New Jersey typically structure their companies as C corporations, S corporations, partnerships and limited liability companies. These structures differ for tax purposes - specifically whether the owner pays personal or business income:

  • C corps: Pay income taxes at the business level.
  • LLCs, S corps and partnerships: Pay personal or business taxes on their share of the company's income.

LLCs, S corps and partnerships are beneficial in New Jersey because the rate for individual returns has been lower than C corps since 2006. In fact, according to a New Jersey Business interview with Ronald J. Ruggeri, principal of MSPC Certified Public Accountants and Advisors, PC, C corps are not common in the state anymore.

"We don't really see too many C corporations these days; that way, if you operate at a loss in any given year, you get to carry that loss forward to reduce future taxable income or be entitled to a refund," Ruggeri explained. "New Jersey looks at each year in a vacuum; whatever happens in that year happens in that year, and it can put small business owners at a disadvantage."