A tax rebate can also be called a tax refund, and it applies to occasions where taxpayers have paid their tax slightly more than due on their return. However, knowing whether your business is eligible for a small business tax rebate might be a bit tricky.
Here are several factors you should consider when determining if your small business is due for a refund.
Generally, the type of business entity you formed can determine the way your business is taxed by the IRS and the State.
Many small business owners elect to form businesses that pass their incomes through the owners. Therefore, the owners are merely taxed on their individual income tax returns. Due to this, payments of taxes are not made to the IRS directly from the business and, therefore, may not get a business tax rebate.
The types of small business entities who pass income to their owners include:
These are single business owners who generally report their income and expenses as components of the owner’s tax return.
This refers to a business where there are two or more owners in an unincorporated agreement. These owners file the Form 1065 and issue the Form K-1 to the partners. Therefore, income and pay tax will be filed on their individual returns.
S corporations are kinds of corporations where taxable incomes were elected to pass from the business through the shareholders. The Form 1120S is filed, and the Form K-1 is issued to each shareholder who will report the income and pay tax for it besides their individual returns.
However, there are small business types who pay income tax directly to the authorities (using the Form 1120). These are called C Corporations, and they are eligible for the small business tax rebate if they pay more than the estimated tax during the year than due on the final return.
The kind of tax you pay may also be a deciding factor in establishing if the small business tax rebate applies to you. Therefore, let’s look at different events where your business may or may not receive a tax rebate or refund.
Businesses that do not report their income directly to the authorities are not eligible for the small business rebate. However, tax refunds may be made directly to the owners, partners or shareholders; however, this is not based on the income of the business but rather on their total income.
Business Sales and excise tax are tax obligations required of many businesses, and this is usually evaluated within the state or jurisdiction of these businesses.
Therefore, in cases of overpayment emanating from these taxes as well as reassessments on property value, it might also lead to a tax rebate to your business.
Generally, if you have paid more on actual tax liability, you might be due for a refund on that exact tax liability. It is often recommended that if your tax liability and refund is confusing, you should speak to a professional about it.
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