The questions below are the ones Utah small business owners ask most frequently during tax season — and throughout the year. These answers address the most common scenarios; your specific situation may have nuances that affect the answer. When in doubt, contact a CPA before acting.
General Business Tax Questions
How much will my business owe in taxes?
It depends on your net profit, entity type, and owner income. A rough framework for a sole proprietor or single-member LLC:
- Self-employment tax (SE tax): 15.3% on net earnings up to the Social Security wage base (~$168,600 in 2024), 2.9% above
- Federal income tax: 10%–37% depending on total taxable income
- Utah income tax: 4.65% flat rate
Total effective tax rates for self-employed individuals commonly range from 25%–40% of net business income. An S-Corp structure can reduce SE tax on profits above a reasonable salary. See our S-Corp vs. LLC guide to model your specific numbers.
What is the difference between a tax deduction and a tax credit?
A deduction reduces your taxable income. If you are in the 24% federal bracket, a $1,000 deduction saves $240 in federal tax.
A tax credit reduces your tax liability dollar-for-dollar. A $1,000 tax credit saves $1,000 in tax regardless of your bracket. Credits are more valuable than deductions of the same dollar amount.
What business expenses are deductible?
The IRS standard: ordinary (common in your trade or business) and necessary (helpful and appropriate). Common deductible expenses include:
- Rent and utilities for business space
- Employee wages and benefits
- Business insurance premiums
- Professional fees (legal, accounting, consulting)
- Software and technology subscriptions
- Business travel and transportation (not commuting)
- Business meals (50%)
- Marketing and advertising
- Equipment, office supplies, and tools
- Continuing education and professional development directly related to your trade
- Home office (exclusive and regular use required)
Personal expenses are never deductible. Mixed-use items require allocation. If you are unsure, document it and let your CPA decide — undocumented deductions are more likely to be disallowed in an audit.
Can I deduct my home office?
Yes, if you use a dedicated space exclusively and regularly for your business. The space must be your principal place of business or where you meet clients. Two methods:
- Simplified method: $5 per square foot up to 300 square feet (maximum $1,500 deduction)
- Regular method: Calculate the percentage of your home used for business and apply that percentage to actual home expenses (mortgage interest/rent, utilities, insurance, depreciation, repairs)
The regular method typically produces a larger deduction. Use Form 8829 if using the regular method on Schedule C.
What records should I keep and for how long?
Keep records supporting every line on your tax return for the period the statute of limitations remains open:
- 3 years from the return due date: general rule
- 6 years: if the IRS suspects you underreported income by more than 25%
- Indefinitely: if the IRS suspects fraud, or for records related to property basis
Retain: bank statements, receipts, invoices, cancelled checks, payroll records, contracts, mileage logs, and prior tax returns. Store in the cloud (Google Drive, Dropbox, QBO/Xero document storage) and keep local backups.
Entity Tax Questions
Should I operate as an LLC or an S-Corp?
The right answer depends on your net profit level. At profits below ~$60,000, the additional compliance costs of an S-Corp (payroll, K-1s, extra filings) typically outweigh the payroll tax savings. Above $80,000–$100,000, the math usually favors S-Corp treatment.
The S-Corp election requires:
- Paying yourself a reasonable W-2 salary (FICA applies to salary)
- Remaining profit distributed without FICA — that’s the savings
See our S-Corp vs. LLC guide and business entity guide for a full framework.
Does my LLC pay taxes?
Not at the entity level (unless it has elected to be taxed as a C-Corp). A single-member LLC is a disregarded entity — its income and expenses appear on the owner’s Schedule C. A multi-member LLC is treated as a partnership by default — income passes through to owners via K-1s. Either way, the LLC itself does not write a check to the IRS for income tax.
Utah does not impose an entity-level franchise tax on LLCs beyond the standard income tax on pass-through income.
What is double taxation and how do I avoid it?
Double taxation refers to the C-Corporation structure: the corporation pays 21% federal corporate income tax on its profits, and then shareholders pay tax again on dividends at the dividend tax rate (up to 23.8% for high earners). The same dollar of profit is taxed twice.
Pass-through entities (S-Corps, LLCs, partnerships, sole proprietorships) avoid double taxation because income passes directly to owners’ personal returns without an entity-level tax.
What is the Utah Pass-Through Entity Tax (PTET) and should I elect it?
The Utah PTET is an elective entity-level tax for S-Corps, partnerships, and LLCs taxed as partnerships. By electing PTET, the entity pays Utah income tax at 4.65% and deducts it as a business expense on the federal return — bypassing the $10,000 SALT (State and Local Tax) deduction cap that applies to individual itemized deductions.
This election can produce meaningful federal tax savings for owners whose combined state and local taxes exceed $10,000. The election must be made annually and is irrevocable once made for that tax year.
See our Utah PTET guide for calculation examples.
Deduction Questions
Is my vehicle deductible?
Partially, if used for business. You must track actual business miles and can deduct either:
- The IRS standard mileage rate (67 cents per mile for 2024), or
- Actual vehicle expenses (fuel, insurance, depreciation, repairs) multiplied by the business-use percentage
Commuting between your home and your regular workplace is not deductible. Driving from your office to a client meeting is deductible.
If you purchase a vehicle used more than 50% for business, you may be able to use Section 179 expensing or bonus depreciation on the business-use portion, subject to luxury vehicle limits.
Can I deduct health insurance premiums?
Self-employed individuals (sole proprietors, partners, S-Corp shareholders who own more than 2% of the company) can deduct 100% of health insurance premiums paid for themselves and their families as an above-the-line adjustment to income — not as a business deduction on Schedule C.
Key condition: you cannot deduct premiums for any month you were eligible for employer-sponsored coverage (from a spouse’s employer, for example).
What is the QBI deduction?
The Qualified Business Income (QBI) deduction (Section 199A) allows eligible taxpayers to deduct up to 20% of qualified business income from pass-through entities. For 2024, the deduction begins phasing out at $191,950 of taxable income ($383,900 married filing jointly) for specified service trades or businesses (SSTBs — which include legal, accounting, health, consulting, and financial services).
For non-SSTB businesses, the deduction is limited by W-2 wages paid and/or unadjusted basis of qualifying property at higher income levels.
The QBI deduction does not reduce self-employment income for SE tax purposes.
Deadline and Penalty Questions
What happens if I miss a tax deadline?
- Late filing penalty: 5% of unpaid tax per month (up to 25%) for filing after the due date.
- Late payment penalty: 0.5% per month on unpaid tax.
- Interest: Currently 8% annually on unpaid balances (rates change quarterly).
Missing payroll tax deposit deadlines triggers an escalating failure-to-deposit penalty: 2% (1–5 days late), 5% (6–15 days late), 10% (16+ days late or willful failure).
Always file on time even if you cannot pay in full — the failure-to-file penalty is much larger than the failure-to-pay penalty.
What is an IRS installment agreement?
If you cannot pay your tax liability in full, you can apply for an IRS payment plan (installment agreement) at IRS.gov/payments. Interest and the late payment penalty continue to accrue during the installment period, but the failure-to-file penalty stops once you file.
Options include:
- Online payment agreements (streamlined for liabilities under $50,000)
- Currently-not-collectible status (for taxpayers in financial hardship)
- Offer in Compromise (settling for less than the full amount — requires meeting strict criteria)
Can the IRS audit me?
Yes. Audit selection is based on statistical anomalies (deductions that appear large relative to income), random selection, and third-party information mismatches (e.g., 1099s that don’t match reported income).
Highest audit risk factors:
- Large Schedule C losses year after year (hobby loss risk)
- Unusually high vehicle or meal deductions relative to revenue
- Cash-intensive businesses
- Home office deductions
- Significant mismatches between 1099s received and income reported
If you receive an IRS notice, contact a CPA or tax attorney immediately. Do not respond to an IRS audit without representation.
Utah-Specific Questions
Does Utah have a state income tax on businesses?
Utah taxes business income through the owners’ personal returns for pass-through entities (4.65% flat rate on all income). C-Corporations file the Utah TC-20 and pay 4.65% on Utah taxable income. There is no separate Utah franchise tax on pass-through entities.
What are my Utah sales tax obligations?
If you sell taxable goods or taxable services to Utah customers, you must register for a sales tax permit with the Utah State Tax Commission and collect and remit sales tax. The base Utah sales tax rate is 4.85%; combined county and municipal rates vary by location.
Services are generally exempt from Utah sales tax unless specifically listed as taxable. Products sold to resellers (with a valid exemption certificate) are exempt.
Call (801) 927-1337 or visit admin@cpaone.net — if your question wasn’t answered here, our team is available to address your specific situation. Business taxes are not one-size-fits-all, and the right answer often depends on details that a general FAQ can’t capture.
About the Author: Missy Dennis, CPA is a Partner at FJ & Associates, PLLC in Kaysville, Utah. She holds a Master of Accounting degree from the University of Utah and is a licensed Certified Public Accountant with more than twenty years of public accounting experience. Missy specializes in tax preparation and tax advisory, bookkeeping strategy alignment, estate and trust taxation, audit and consulting services, low-income housing tax credits, non-profit accounting, and small- and mid-sized business advisory. She is committed to providing clear, accurate, and actionable guidance so clients can navigate complex financial decisions with confidence.
