Iindividual taxpayers may be eligible for tax refund after paying more money in federal or state taxes than they were supposed to contribute.
However, business tax refunds are not that common and it mostly depends on your type of business, with the majority of small businesses not paying. income taxes directly.
The different types of business entities
Those who decide to start their own business are called upon to determine what types of business entity to form. Sole proprietorship dictates that owners report their business income on their personal tax return, while partnerships do not pay taxes directly to the IRS, and LLCs can choose whether they wish to be taxed as a flow-through entity or corporation.
S corporations act like partnerships in terms of tax reporting, while C corporations are the only business entities that could receive tax refunds.
The difference between the C corporation and other types of business entities is that profits are taxed separately from their owners.
Ways to Maximize Tax Refunds
Having more tax withheld from your paychecks in order to receive a large refund is not the best way to maximize your tax refunds. First, be sure to review your personal bank and card statements and keep a record of your spending.
Feel free to prepay upcoming expenses and make sure you know about any tax credits the US government offers for businesses, as you may qualify for some of them.
Meanwhile, intermediate business owners may be allowed to claim a deduction of up to 20% of their qualified business income.
“Many owners of sole proprietorships, partnerships, S corporations, and certain trusts and estates may be eligible for a qualified business income (QBI) deduction – also known as Section 199A – for tax years beginning after December 31, 2017,” the IRS website says.
“The deduction allows eligible taxpayers to deduct up to 20% of their qualifying business income (QBI), plus 20% of qualifying real estate investment trust (REIT) dividends and publicly traded partnership (PTP) income qualified.
“Income earned through a C corporation or by providing services as an employee is not eligible for the deduction.”