Undoubtedly, having your own business has many benefits. You can recruit coworkers, have greater control over your work schedule, and enjoy the thrill of starting a business from scratch.
But having a small business also means dealing with other less pleasurable duties, including paying taxes. Few business owners enjoy doing their taxes, yet they all must brave the process each year.
But it doesn’t have to be a headache. Your taxes can and will be simpler and more organized if you use these tax preparation tips.
Tax Preparation is Important!
Although tax preparation might be time-consuming, your company may incur fines if you fail to comply with US tax laws. Review these typical year-end procedures to create sound tax habits. These tax preparation tips will make filing business taxes a breeze.
Work with a CPA or other licensed tax professional to ensure your company fully utilizes all tax deductions, write-offs, and other benefits.
- Working with experts will guarantee you stay updated on the continuously evolving tax laws and regulations.
- The end of the year is a beautiful time to plan how you want to prioritize spending and push expenses in addition to organizing your taxes.
- By moving expenses from December 31 to January 1, you can lower your taxable income for the current year.
- Make sure your employees, whether they are full-time, part-time, or contract-based, receive the correct tax forms by working with your HR department or office manager.
- Before meeting with a CPA or tax professional, small business owners who wish to learn more about the tax process should take this advice into account.
It would help if you approached business tax preparation wisely to prevent that from happening to your small business. Even though the start of tax season isn’t until next year, it’s in your best interest to prepare for your subsequent income tax return.
Tax Preparation Tips
We sought the best advice from finance experts and small business owners to assist small businesses in preparing their taxes.
Several small company resources are available to assist you in getting ready for and surviving tax season, from looking up listings with the American Institute of Certified Public Accountants (AICPA) to attending a free course from the Small Business Administration (SBA).
Tax Preparation Tip #1 – Search for out-of-date stock or uncollectible debts.
Running a business involves some risk; sadly, some products don’t sell, and some debts can’t be recovered. Both scenarios are deductible even if none are optimal for any organization.
Regarding taxes, old inventory—or merchandise that can no longer be sold—may be written off as a cost. According to Gross, you can eliminate the products that can’t be sold and write off the initial purchase price since inventory is only expensed when sold.
The same idea applies to unpaid debt, albeit your business model will determine what counts as an uncollectable obligation. In either case, you’ll need accurate records to support your claims.
Tip #2 – Separate your personal and business expenses
Small business entrepreneurs, particularly sole proprietors because there is less paperwork needed to start this sort of firm, frequently struggle to balance work and personal obligations. Your job is essentially your life. It would help if you avoided this pitfall right away, at least monetarily.
By combining company and personal spending, you risk having certain business expenses rejected by the IRS if you appear to be conducting your business as an individual.
Using separate bank accounts for the company is a simple method to draw the line. Maintaining that division is, for many, the most challenging aspect.
Tip #3 – Determine your anticipated payroll taxes.
Your payroll taxes should be current and computed throughout the year as part of the projected tax payment schedule, along with expenses and deductions.
According to Jamal Ayyad, vice president of service delivery for SurePayroll, small businesses that might use a little more breathing room in paying their payroll taxes may be eligible to take advantage of an IRS payment plan.
You might qualify if you submitted all required returns and owe no more than $25,000 in total tax, penalties, and interest. For additional information on how to apply for the payment plan, visit the IRS website.
Tip #4 – Track Your Expenses Accurately
Speaking of costs, the more you can claim, the less your adjusted gross income (AGI) will be, and the less tax you will owe as a result.
Keeping a strict track of the costs associated with your business, such as office supplies, meals and entertainment, travel, ground transportation, insurance, advertising, legal fees, and other deductions, is necessary to do.
If you rush to gather these just before the filing date, you can miss some. Try to keep track of your spending at least once a month, if not weekly or as it happens.
Tip #5 – Employ a Certified Accountant
Even those few small business owners specializing in tax preparation shouldn’t be spending their time on taxes. One of the key players on a successful team is a seasoned and dependable accountant.
There is no reason not to hire a professional to prepare your taxes and instruct you on how to align your business finances. Your accountant doesn’t necessarily need to work for you full-time; you can hire them just for their services.
Tip #6 – Submit your year-end tax returns.
You probably need to submit significant forms about your business and its employees by the end of the year, even though the tax forms for your organization’s income and operation aren’t due until mid-April. These forms consist of:
Form W-2: This document details your company has paid its staff and the taxes deducted from those salaries. Although your employees’ income tax brackets are more critical for this form, your company is still responsible for filing it with the Social Security Administration.
Form 1096: You must file 1096s if your business hires contract workers during the year. These documents perform a similar role to W-3s, except that they apply to independent contractors who earn 1099s.
Form 941: This form is utilized to report taxes paid to several programs, including Social Security, Medicare, and income taxes.
Form 940 details the Federal Unemployment Tax (FUTA), which is the amount of taxes that companies must pay to receive unemployment benefits.
Form 1095c: You must submit this form if your small business offers health insurance to its workers. These documents specify which employees had coverage and can be used to establish tax credit eligibility.
Tip #7 – Digitalize Receipts
Scanning and saving receipts are now simpler than ever, thanks to some cost tracking applications.If you can incorporate the technologies of today into your daily activities, do so.
By enabling you to do rid of paper receipts, digitizing your receipts can help you clear up some space. More importantly, having a secure and well-organized online record of your expenses can save your life if you ever face an IRS audit.
Tip #8 – Spend money on quality software
For new business owners, Excel is an accessible and adequate launching tool, but once your company is up and going, it’s time to lay the groundwork for reliable financial reporting.
Once you get the hang of them, many powerful accounting tools are just as simple as Excel. Accounting software can also combine your company’s finances, including wages, expenses, and invoicing.
Tip #9 – Keep in mind that cash-based enterprises may be more adaptable.
If your company relies on cash transactions, you might want to consider your reporting procedures as the year closes. Only when money is received or spent must cash-based enterprises record their income and expenses.
With that in mind, Gross said you might want to reconsider how you transmit and receive payments as the year ends.
“If for whatever reason you’re close to the end of December and you have the opportunity to defer receiving a check until the next year, you could do that,” said Gross. “You didn’t receive the cash until the following year.”
According to Gross, you may accelerate your spending while postponing your revenue depending on how you manage your year-end cash flow.
Tax Preparation Tip #10 – Think about making significant year-end investments.
When it comes to paying taxes, deductions are your friend. Tax reduction is always satisfying and guarantees that you are utilizing authorized exceptions.
Making upgrades or capital improvements close to the end of the year is one approach to boost your tax deductions.
Looking for help to optimize your tax preparation for your small business? Contact us at Speed Financial Group.
Have any questions or comments about “Top 10 Tax preparation tips for Small Businesses”, leave a comment below.
Also read “How you can prepare your Small Business Tax Strategy“
