Running a small business has a number of benefits. Not only is it easier to manage, but it also enjoys a good reputation in the minds of customers.
Even the federal government confers various benefits to small businesses to help them grow and succeed. You get better rates on some loans, can get government contracts, and even receive research grants from the SBA.
Hence, it is best to know if you are a small business so that you can utilize all these benefits.
Wondering if your company is a small business or not? While most people think having a small turnover or limited employees is classified as a small business, that is far from the truth.
We reached out to Adam Valdez who is a small business CPA from San Antonio to find the answers for you.
Are You A Small Business?
When we think of a small business, we imagine freelancers, solopreneurs, the couple running the corner store, family-run businesses, or those businesses that have small, cramped offices with barely 8-10 employees.
While logically these are truly small businesses, that’s not the complete scenario. Anyone can call themselves a small business if the number of employees or annual revenue is smaller than corporations.
But the U.S. Small Business Administration (SBA), Internal Revenue Service(IRS), and Affordable Care Act(ACA) have laid down definitions for them to decide who qualifies for the benefits.
1. SBA
SBA has a table of size standards based on average annual receipts and the number of employees. The table includes the largest limits that can qualify as a small business.
To be eligible for the benefits offered by SBA you need to fulfill these criteria. These standards vary across various industries and subsectors within the industry. To find out if your business falls within these standards, you can either use your NAICS(North American Industry Classification System) Code or Search for your specific industry.
There is a huge variation in who classifies as a small business based on industry. For eg. Advertising agencies with up to $15 million in revenue can classify as small businesses. But for construction businesses, this can go up to $36.5 million. And if you are in food manufacturing you can have up to 1000 employees based on your subsector.
2. ACA
The ACA decides if you have to offer health coverage to your employees. So as a business it is important to know if you are classified by the ACA as a small business or not.
ACA considers all companies with up to 50 employees to be small businesses. This includes full-time employees and full-time equivalent employees. If you classify as a small business, you are not subjected to certain provisions of the Act and can receive some tax credit too.
3. IRS
While the IRS has not laid down specific standards to define a small business, they use individual tax laws to determine what is considered to be one. If you fill Form 1040 or 1040-SR, Schedules C, E, F, or have assets under $10 million, you can be classified as one.
Knowing if you are a small business can help you prepare your taxes properly and even help frame better business strategies. Your CPA will help you with all the calculations required to determine your eligibility.
Looking for a small business CPA in San Antonio? Get in touch with Adam Valdez CPA for a consultation. They are a family-run business and provide tax planning, business consulting, bookkeeping, and estate planning services in San Antonio and surrounding areas.