There are many things that you need to think about as a business owner. One of the last things that you want to focus on is the tax code. Unfortunately, taxes are a very important part of running a business. They can also be rather complicated, especially if you are running a global business if you are trying to make money online.
The consequences of tax evasion can be very serious, even if they are unintentional. This is why you should consider the benefits of using global tax solutions.
The chances that you are doing your taxes incorrectly is also very high. Data from the IRS shows that 63% of small businesses are noncompliant with the tax code. The IRS is likely to crack down on noncompliant small businesses even more in the future to recapture the $190 billion that they underpay in both FICA and income taxes each year.
Although some business owners obviously intentionally underreport and underpay their taxes, others simply make mistakes due to their poor understanding of the tax code. Either way, they can pay significant penalties if they are caught running afoul of tax laws.
Unfortunately, tax compliance becomes even trickier if you are operating a global business over the Internet. You will be subject to tax laws of different countries, which may draw their jurisdictional lines differently. You also need to recognize that you might have to pay a sales tax, which might be stipulated based on the location of your customers, rather than the location of your business.
Here are some important tips to keep in mind.
Find out if you are subject to a global or territorial tax system
The majority of jurisdictions operate under a territorial tax code. Under this tax system, companies only need to pay taxes on revenue generated within the borders of that jurisdiction.
Some countries have a global tax system instead. Under the system, companies need to pay taxes on all profits to their home country, regardless of where they are earned. The United States is one of only six countries in the entire world that has a global tax system. This means that a corporation based in the United States must report income to the IRS whether it is earned in the United States, Germany, Kenya or any other country. They must also pay taxes to the local jurisdiction as well.
If you are operating in the United States or another country with a global tax system, you might want to see if it is possible to relocate your company headquarters. This could help you avoid having to pay taxes to two different jurisdictions.
Choose accelerated depreciation schedules wisely
Depreciation is one of the most important deductions that most businesses take. It may not be quite as common of a deduction with a standard Internet-based company, but it still could come up. This is especially true if you manufacture your own products that are sold online. You are going to need to depreciate your equipment to get maximum tax benefits.
You have the option of using accelerated depreciation. This could be a good idea if you need a strong cash flow in your early years to grow your business. However, it can backfire if your revenue grows enough to put you in a higher tax bracket if your company isn't structured as a corporation or S-Corp.
You need to crunch the numbers and see what the cost benefit analysis will be of various accelerated depreciation schedules.
Work with local tax experts
Taxes work differently all over the world. You need to work with established experts before trying to handle taxes yourself. This will save you many headaches and likely spare you from fines and worse penalties as a result of noncompliance.
Understand how to deduct local taxes and fees on other countries' tax returns
Every country has different sales taxes. You need to make sure that you understand them and comply in every country that you operate. If you are generating a tiny number of sales in a particular country, then you might want to consider ending business there just to avoid the hassle of filing another sales tax return.
Familiarize yourself with global sales tax rules
Every country has different sales taxes. You need to make sure that you understand them and comply in every country that you operate. If you are generating a tiny number of sales in a particular country, then you might want to consider ending business there just to avoid the hassle of filing another sales tax return.
