Tax season can be a dreaded time of year if you’re a small business owner. You’ve been so focused on running your business and investing your profits for growth that your tax obligations have been moved to the back burner. When tax season rolls around, you’re suddenly scrambling to gather receipts and organize information for accurate tax prep.
Take a proactive approach to tax prep now to avoid the stressful scramble. Next tax season, you can be totally prepared because you followed these 10 tips for better business tax prep.
It’s never too early in the year to begin preparing for next year’s tax filing.
If you haven’t already implemented a system of tracking your profits, expenses, and business information, start doing so now. Gather details regarding the business owner(s), monthly profits, receipts from expenses, notes regarding travel, credit amounts, payroll, and more.
When you have a system in place for organizing this information, continue using it throughout the year so that you can easily present the information to your tax preparer come April.
You should also make estimated quarterly tax payments. Failing to do so will subject you to penalties.
Speak with a tax advisor and do basic research on the kinds of deductions you can take for your small business in order to maximize your return. You might be surprised how many deductions you’re allowed as a small business owner.
For example, a business owner can deduct a portion of their mortgage or rent expense for their home office. They can also deduct a portion of their utilities. Other deductions for small businesses include:
Employee salaries and wages
Interest on loans
This is a short list of common items that small business owners can deduct, but there are more. You’ll want to research all possible deductions for your business and keep track of them throughout the year, so you include everything.
You should keep all tax returns for the last seven years in case of an audit. However, there are more benefits to keeping your tax returns than just protecting yourself. It also provides a useful reference for filing the next year’s taxes.
Review last year’s taxes to compare financial information from year to year. It contains all the information needed for filing, so your tax preparer can pull the information from these forms. Additionally, it contains information about deductions, capital losses, interest, and other things that helped you accurately report your taxes last year.
By reviewing your taxes from previous years, you’ll have a useful checklist to show you all the deductions and information you need for this year’s taxes. It makes the process much simpler!
Tax laws change all the time as new bills are passed in congress, and small businesses are often affected. It’s vital that you stay informed each year to avoid making a mistake on your taxes.
For example, a recent bill now makes it so that you can no longer deduct 50 percent of your client entertainment expenses. This makes your golf outings much more expensive!
Consider subscribing to blogs that feature the latest news and handy tricks for filing taxes. The Taxfyle blog is a great resource. Tax Policy Center, Don’t Mess with Taxes, and The Wandering Tax Pro can also keep you informed.
If you’re still relying solely on a large filing cabinet to organize your tax information, it’s time to join the 21st century! Paper copies of your returns, receipts, and other tax information are useful, but you should also be using a secure cloud server to collect this data, so it’s not lost in the event of a disaster.
Along with using the cloud, small business owners should also invest in great accounting and tax preparation software tools. There are many bookkeeping tools, deduction trackers, and all-in-one accounting programs to help you consolidate your business finances, make payroll, and invoice clients.
Even something as simple as an Excel spreadsheet can make tracking tax information a breeze. Don’t ignore the many technological tools designed to make tax prep easier and more accurate.
Small business owners often mix business and personal expenses. It seems harmless at the time, especially if you’re just starting out and your profits are thin. However, this can lead to tax trouble. It creates a murky mess that you must sort through to get accurate numbers at tax time.
Create a system that allows you to separate business and personal expenses. You might get a credit card, for example, that’s only used for business expenses. Separate checking and/or savings accounts are also important.
If you must use a personal account to pay for business expenses (such as in the case of paying the rent when your business is run out of your home), keep careful records of which portion of that expense should go toward your business.
Many tax problems could easily be solved with a better managed payroll system. Small businesses often fail to keep accurate payroll records because it doesn’t seem important at the beginning. But when you’re required to share accurate numbers with the IRS when filing your taxes, this comes back to bite you.
Payroll software can be invaluable in organizing your payroll records. It will also help you classify employees correctly so that you’re using the right deductions and tax brackets. Once you do it correctly, you’ll never want to go back!
Many small business owners don’t recognize the importance of correctly filing taxes. They see it as a nuisance that must be done every year. But failing to incorporate a tax strategy into your business strategy leads to mistakes that can hurt your business.
Look at the larger picture when working on your taxes. For example, you might choose to incorporate your business as an S corporation because it will be better from a tax standpoint. However, this may not be the best strategy for your company because if you intend to form a partnership or expand your business, it becomes infinitely more complicated.
It’s smart to take the advice of a professional, but only do so if it will ultimately lead to the best outcomes.
Small businesses must do everything they can to keep their expenses low, so you might have forgone the option of hiring an accountant or bookkeeper. When you’re first starting out, this might be a feasible option, but as your business grows, you’ll need someone whose sole responsibility is to organize your accounts and handle your taxes so that you can focus on running your booming business.
Hire a bookkeeper or accountant that understands the vision you have for your business. They should also be well-informed with the latest tax laws.
Meet with this employee on a regular basis to stay well-informed on your tax obligations, balance sheets, opportunities for deductions, and more. This will create a more cohesive pattern for your finances, making tax time a cinch.
Whether you have an accountant on staff or you’re trying to do your taxes on your own, outsourcing this responsibility to a tax specialist can be a huge relief. Tax season will be the busiest time of the year for your financial department, and it’s easy to become overworked and make mistakes.
Use Taxfyle for your tax preparation outsourcing needs. We hire the most qualified licensed tax professionals to handle all our clients’ tax preparation paperwork with the highest quality results. You can always expect a quick turnaround, despite a busy tax season.
What’s more, Taxfyle preparers know the ins and outs of business taxes. We’ll find deductions and savings that you might not have considered. Find out more about how Taxfyle can make your life much easier this tax season!
Get the latest posts delivered right to your inbox