Just as individuals do, businesses have to pay taxes on any property they own, including land and buildings, and it might be a bit tricky for small business owners who have just started operations. However, understanding how to pay and deduct property taxes as small business owners will help us keep our company compliant while making our accounting and legal responsibilities more manageable. This is what you should know regarding property taxes if you or your company have just purchased a property or any real estate assets.
As we mentioned above, businesses that own property or real estate are required to pay tax on such properties to the IRS. These taxes are called ad valorem, because they depend on the value of the property, which means that the value is determined by a property assessor. We must remember, though, that the assessed value for tax purposes is not the same as the fair market value, which would then be determined by a business appraiser.
When it comes to property taxes, these are assessed by different local entities, like towns, cities, counties, or villages, and they are used for local purposes such as building and improving roads, schools, and any infrastructure that the community needs. Therefore, the corresponding tax authority will register the properties owned by your business and send a tax bill showing the amount of tax you should cover year by year.
You should keep in mind that some property expenses can be deductible, but the IRS has set different limitations that you need to be aware of. TO begin with, you will be able to make a deduction based on the assessed value of your property. In order to deduct a portion of your property taxes, expenses must be made for local benefit, including maintenance, repair, or interest charges. However, you need to consult your local taxing authority to make sure your company’s expenses will qualify.
If you are thinking about buying or selling business property, you also need to keep in mind that during the year of the transaction, the tax bill would then be shared between the buyer and the seller. This will be determined by the period of time during which a real estate asset was owned by the seller and the period of time during which the buyer became the new owner.
Property taxes for small business owners might be a bit trickier than we think but having the right tax professional by your side giving you the guidance you need will make this process much easier. If you are a business owner who wants to buy or sell a property for your company, get in touch with us and we will give you the assistance you deserve.