Small Business Taxes
Filing and paying your business taxes is something that every small business owner inevitably faces.
To help you better prepare for tax season, we asked small business owners and accountants for their best tips for doing business taxes. From balancing the monthly books to investing in a POS system, there are several ideas that may help you prepare business taxes for years to come.
Here are nine tips for doing business taxes:
- Maximize Technology Tools
- Completely Separate Personal and Business Finances
- Hire a Professional
- Invest in a POS System
- Balance The Books Monthly
- Cultivate a Relationship With Your Accountant
- Determine Which Deductions Are Appropriate
- File Correctly and Take Note of Deadlines
Maximize Technology Tools
Business taxes can be streamlined if technology tools are employed in the right way, at the right time. When financial institutions send electronic statements, don’t delete them. Rather, download, scrutinize, and reconcile the transaction in your e-statements. This way, you’ll be more prepared for the final process of filing your taxes. Additionally, use accounting software to compute your business earnings, expenditures, and other financial information. Many accounting tools have built-in tax preparation features and will permit the linking of checking accounts and other financial documents. Using technology tools reduces the attendant stress and frustration of doing business taxes, so maximize them.
- Chioma Iwunze-Ibiam, Time Doctor
Completely Separate Personal and Business Finances
When you're first starting out in your small business, it can be tempting to just throw something on your personal card instead of a business card. You might even tell yourself you'll deal with separating it later.
It's best to begin with completely separate finances because it can get really muddy, really quickly, especially if you're audited. Get a business credit card and never mix this with personal spending. Pay yourself a wage, just like you would with an employee. These steps will keep your finances officially separate and it will be easier for you to keep track of for the entire fiscal year.
- Holly Mills, Thrive Cuisine
Hire a Professional
Some business owners think they’ll save money by doing taxes themselves. However, this can be a hefty experience since they might miss something and become legally liable. If that happens, they’re more likely to pay penalties and end up spending more than if they were hiring trusted professionals. That said, if you’re a small business owner trying to cut costs on every side, don’t cut it on the most important things such as taxes. Hire a professional, and peacefully focus on what you know the best.
- Eduardo Litonjua, Passive Income Tree
Share Insurance Premium Payments
While life insurance premiums are categorized as a personal expense, - and therefore not tax-deductible - other insurance premiums may be deductible for the self-employed or if health expenses exceed 10% of your AGI (adjusted gross income). Be sure to share which insurance premiums you are paying to your CPA or accountant. The more they are aware of expenses you are incurring like health insurance premiums, the more tax professionals may be able to itemize.
- Chris Abrams, Abrams Insurance Solutions
Invest in a POS System
A POS system that integrates with your chosen accounting software makes revenue tracking more manageable. In this set-up, it is easier for you or your accountant to determine how much tax you owe the government.
If your POS tool doesn't integrate with your accounting software, you must manually audit every transaction. However, that is time-consuming and inefficient, especially since there's a cheaper way to automate the process.
- Stephen Light, Nolah Mattress
Balance The Books Monthly
Previously, I didn’t balance the books every month because, like most small business owners, I was doing a million things at once. Who had time to do accounting? Let the CPA handle the mess at year-end. But then, I decided to hire a bookkeeper to balance our books on a monthly basis. A very smart decision! Balancing the books every month not only makes tax preparation a lot more painless but up-to-date financials ensure that the information you are basing business decisions on is accurate and reliable. I’d highly encourage any small business owner to seek bookkeeping help. Your future self and your CPA will thank you later.
- Brett Farmiloe, Markitors
Cultivate a Relationship With Your Accountant
It's important to have a good relationship with an accountant so that when anything comes up or you have an urgent question you both are already on the same page and have a good rapport. Before you cultivate that relationship though, you need to really, thoroughly vet your options. Make sure they have experience with your type of business and check all of their reviews, especially on social media where people are usually most outspoken with their opinions.
CPAs are required to partake in continuing education so don't just settle for someone who says they're licensed. Make sure they've upheld the maintenance as well.
- Camille Chulick, Averr Aglow
Determine Which Deductions Are Appropriate
Profits are treated as pre-tax income at both the federal and state level. It doesn't matter if you pocket it personally, distribute it as a profit-sharing bonus, or put it right back into business improvements. That sum is still all taxable.
However, you can at least lower your total liability by strategically allocating money toward deductible expenses. This is especially important in your business' earliest years when you're eligible for things like startup tax deductions, which lowers your liability even more during an especially crucial period. It takes a little research to determine which deductions are most relevant for your organization and growth goals, but it's worth it.
- Jim Pendergast, altLINE
File Correctly and Take Note of Deadlines
Make sure you have the correct IRS tax form. Depending on your business operations, whether it's a sole proprietorship or an LLC, forms are different. For example, you can use a Schedule C attachment or file through corporate taxation (Form 1120 or 1120S if you're an S-Corp).
Once you fill out the necessary forms for your business, take note of the filing deadlines. Schedule C forms merge with your Form 1040, including your deadlines, which are normally on April 15. Form 1120 should be filed by the 15th day of the fourth month after the tax year has concluded, while Form 1120S should be filed by March 15th. All of this is separate from your personal income tax return.
- John Li, Fig Loans
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Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.