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If you are doing your own taxes for the first time without the help of an expert, you need to know a few tax-related terms to help you through the way. The tax terms that affect a business the most are not difficult to learn, nor are they complex to understand. The task becomes even easier when you find the right definitions. There are thousands of them to learn, but it is important to pick out the main ones.
There are five essential tax terms that every business owner should know about. Tax planning and preparation can seem daunting if you are doing it for the first time. However, things can become easier with practice. Nevertheless, it is recommended to get Tax Resolution for businesses in San Mateo, CA, instead of doing it yourself.
Five basic tax terms every business owner should know.
- Withholding.
Withholding is the part or amount of the paycheck the employer directly sends to the government every month as a partial payment of an employee’s income tax. The withheld taxes are then held in the Internal Revenue Service’s account, and you can get them back when you file your return at the end of the year.
- Capital/equity.
Equity is assets minus liabilities. On the other hand, capital is the money you use to buy assets and equipment in your business and to run it successfully. People easily get confused between the two terms and often use them interchangeably, but these two actually have different meanings.
- Gross total income.
The Gross Total Income or GTI of your business is crucial in the process of tax filing. It includes salary income, profit and gains of business & profession, income from house property, capital gain, and income from other sources. It is important to list all your sources of income and compute the GTI to avoid errors in tax preparation.
- Filing status.
Your filing status determines the types of forms you will be filling out and is important in calculating your taxable income. Your relationship status, whether you are single or planning to get married, determines how you file and if you are entitled to any tax breaks.
- Profit.
Businesses sell some product or service to their customers. When sold to clients, these services and products are referred to as sales, after which the business gains money. However, the business also has expenses to look after, such as rent, electricity, household costs, etc. The money left after you have paid all your expenses is the profit.
