Individual taxpayers may be eligible for tax refunds after paying more money on federal or state government taxes than what they were supposed to contribute.
However, tax refunds for businesses are not that common and it mainly depends on your business type, with the majority of the small businesses not paying income taxes directly.
The different types of business entities
Those who decide to start their own business are called to determine which types of business entity to form. The sole proprietorship dictates that the owners report their business income on their personal tax return, while partnerships don’t pay taxes directly to the IRS and limited liability companies can choose whether they want to be taxed as a pass-through entity or a corporation.
S corporations act like partnerships in terms of tax filing, while C corporations are the only business entities which could receive tax refunds.
The difference between C-corporation and the other business entity types is that profits are taxed separately from their owners.
Ways to maximise tax refunds
Having more tax withheld from your paychecks in order to receive a large refund is not the best way to maximise your tax refunds. First, make sure that you review your personal bank and card statements and keep records of your expenses.
Don’t hesitate to prepay upcoming expenses and make sure that you are aware of all tax credits that the US government offers to businesses, as you may be eligible for some of them.
Meanwhile, owners of pass-through businesses may be allowed to claim deduction worth up to 20 percent of their qualified business income.
“Many owners of sole proprietorships, partnerships, S corporations and some trusts and estates may be eligible for a qualified business income (QBI) deduction – also called Section 199A – for tax years beginning after December 31, 2017,” reads the IRS website.
“The deduction allows eligible taxpayers to deduct up to 20 percent of their qualified business income (QBI), plus 20 percent of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income.
“Income earned through a C corporation or by providing services as an employee is not eligible for the deduction.”
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