What You Need to Know at Tax Time

There are many reasons why you might want to consider using a service like factoring for the needs of your small business. This is a service that can come in handy when times are tough. This service involves selling your unpaid invoices to a third party. This third party gives you a percentage of the total of the invoices upfront, then provides you with the difference once the total debt has been collected on the invoices from customers. While it can be beneficial to use this service, it can also bring forth some unique questions.

In order for you to take advantage of this service, you will find that it is a very good idea to familiarize yourself with how it will impact your taxes. Look over these points to gain a more complete understanding of what you need to know at tax time.

Determining Tax Factors

To begin, you are going to want to understand what is taken into consideration when determining whether or not your experiences are taxable. For the most part, you are going to want to make sure that the factoring group you work with is located in the same country as your business. The IRS is often dubious of any financial business conducted through offshore establishments, so use your discretion when selecting the best option for selling your invoices.

It is also important to note that the exact agreement you have with the company providing the service will play into your success at tax time. While there is little that can be done if the service has already been completed, this is useful information to have in your mind when looking for the right company to sell your invoices to. Speak with a representative when making your agreement and learn about whether or not the service will be considered taxable.

Unpaid Taxes

Of course, there are some circumstances that will always lead to the IRS wanting to investigate your company’s finances a little more closely. If you have had any prior issues with your taxes that might have resulted in a lien being placed on your company, then you can bet that you will have difficulties with factoring and its tax

Learning about the taxes related to your small business can be difficult. When it comes to financial services like factoring, you need to have a good idea of what to expect at tax time. Speak with a representative from the company providing the service and you will be able to get a better understanding on what is in front of you.


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