It is a known fact that every one of us is obliged to pay taxes. Personal income tax can be gotten from employees and that is based on their gross income. Businesses also need to pay certain taxes as well, but mostly sales tax.
Every country has an internal revenue service that will ensure that every money-earning entity pays its taxes. You already know that individuals pay taxes based on their income, right? But how about for businesses?
Well, that is actually based on how much the business earns, but its calculation is actually not cut and dry, which means that it can be quite cumbersome and time-consuming to compute for it all.
Thankfully, there are tax accounting services in Malaysia that will do the tasks for you so you do not have to worry about that. What do you need to know about paying taxes and business? Read on to find out.
Cash or Credit
If you are running a small business, there are two ways you can report your taxes. The first is the cash method. For example, if your business follows the cash-basis scheme, you will declare all of the cash payments that are acquired by your business this year and you note it as income when you file your return.
The next method would be accrual accounting and it takes into consideration the credit sales as well. Credit sales are just the money that is owed to you by the person who bought your goods/services and hasn’t paid yet in full
The internal revenue service will deem both cash and credit as the same and will group it as company income. Should your customers fail to pay you in full, you can claim a write-off later for bad debts.
You have to remember that the taxes that you have to pay will depend on the model you follow for your business. For example, if you are running a small business and you have only reported your taxes, it doesn’t matter what you do with the money that you have on hand. You can take a vacation or perhaps even acquire new machinery- the IRS doesn’t care about that.
The only thing that you have to think about at this point is to ensure that the information that you’ve laid out is truthful and you’ve really calculated your taxes really well.
Small and medium businesses are usually deemed as non-corporate businesses. The IRS treats such as ‘pass-through’ entities, meaning, the money is only acquired through the business but the money ultimately ends up in the owner’s hands.
As an owner, you will then report your share of the income (assuming that you have a co-owner) and then subtract it to your expenses. These data should be on your tax return when you file it.
If your business structure is a partnership, then you will file an informational tax return based on partnership income. Again, the business doesn’t have to pay anything at all.
However, things change if you are running an LLC. Even if you do not pay federal income tax, there are some countries or states that will require you to do so (as well as the owners).