Stupid Tax
Stupid Tax, I first heard this term while listening to a colleague complain about having to pay large overdraft charges, because he failed to keep track of when automatic bill payments hit his bank account. I thought that it was a great phrase. It comically describes the cost of not paying attention to your responsibilities.
I borrow the term when I am stressing to clients the importance of paying attention to their tax responsibilities. The stupid tax in this case is a tax penalty. This is the fee assessed by taxing agencies when a taxpayer (i.e., an individual or a business) does not meet his/her tax obligations.
While there are a number of ways a business can incur tax penalties, I find that being aware of some basic tax information helps to prevent most tax penalties. Following are three basic tips for preventing tax penalties.
File Your Tax Return: A tax return is a form (or forms) filed with a tax authority that reports income, expenses, and other pertinent tax information. There is a myth that if a business does not earn any money or earns less than a certain amount of income there is no need to file a tax return. Untrue. Always work with your tax preparer to file your business tax returns properly. Note that each taxing agency has its own parameters about when to file (i.e., monthly, quarterly, or annually.).
Know Which Taxing Agency: The number one word I hear when providing a basic tax overview to an entrepreneur is “WHAT?” A business incurs taxes on a federal, state, local, and in some cases hyperlocal level, so entrepreneurs often say, “What is this agency?”
In Kentucky, entrepreneurs can check to see if their city levies a local tax called an occupational license tax by checking out Info Central on the Kentucky League of Cities website.
Understand That There Might Be A Tax: A business could incur taxes based on its business structure, for owning property, selling certain services/products, selling digital property, earning a profit, and more. Here is a short list of the less “known” taxes levied by the KY Department of Revenue:
· Limited Liability Entity Tax (LLET)- applies to both C corporations and Limited Liability Pass-Through Entities (i.e., LLCs and S- Corp). The LLET may be calculated using the lesser of $0.095/$100 of Kentucky gross receipts or $0.75/$100 of Kentucky gross profits. A minimum tax of $175 applies regardless of the method used.
· Use Tax - is imposed on the purchase price of tangible personal property, digital property purchased for storage, use, or other consumption in Kentucky. The use tax is a "back stop" for sales tax and generally applies to property purchased outside the state for storage, use, or consumption within the state
· Business Personal Property Tax- Taxable property includes, but not limited to, business machinery, computers, equipment, furniture, and inventories. The return should include property that has been fully depreciated, in storage or expensed if on hand as of the assessment date of January 1.
o Each individual, partnership, or corporation that has taxable personal property must file a return Form 62A500 between January 1st and May 15th with their local Property Valuation Administrator. Form 62A500 is not required to be filed for tangible personal property with a sum fair cash value of $1,000 or less per property location.
To learn more about your tax responsibilities go to https://onestop.ky.gov/operate/Pages/taxes.aspx
Stupid tax does not have to be a part of your entrepreneurial journey. Take some time to sit with your accountant or CPA to help you understand all of your tax obligations.
As a business coach for the Louisville Small Business Development Center, I provide business registration guidance to entrepreneurs who are seeking to startup their business. This free hour-long coaching session includes a basic overview of taxes. Feel free to reach out to me at toni.cardell@uky.edu to schedule a session.
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Reach out to Toni Sears and the team of business coaches at the Louisville Small Business Development Center for assistance in implementing these strategies. We are a free coaching resource for small businesses, particularly in the startup, growth, and funding phases of the business life cycle. We are here to help.