Have you recovered from the last time you did tax preparation?
If you own a small business, you have certainly given plenty of thought to tax preparation. Or you might be in denial. Because who wants to think about taxes? You’re not alone if this describes you. But instead of getting in hot water with the IRS, take a minute to look at some quick tips for tax preparation for your small business.
Tip #1: The IRS Does Care – About Your Liability
Don’t buy into the mindset that the Internal Revenue Service doesn’t pay much attention to small businesses. The truth is, in recent years, they are paying closer and closer attention to smaller businesses and targeting them more often for audits. Don’t be on the receiving end of an audit notification. Understand your finances and your liability, and file accurately and on time.
Tip #2: Be Honest and Accurate With Your Deductions
Taking advantage of as many deductions as possible is important to your business and reeling in your tax liability. However, don’t exaggerate your deductions. Taking too many can raise a red flag for audits. Talk to your accountant and find out what you can legitimately claim, and what you can’t. Guessing or adding in items “just in case” isn’t going to do you any favors in the long run.
Tip #3: Don’t Mess With Payroll Taxes
Payroll can be confusing, and payroll taxes only make it more so. If you get them wrong, you could be facing steep penalties. This is just one of the many great reasons to have someone else do your payroll. An accountant or accounting firm can manage it for you and get the taxes right in the process.
Tip #4: Make Quarterly Payments
As a small business owner, you’re probably responsible for self-employment tax. Did you know that quarterly tax payments are a must for self-employed individuals? While you don’t have to make these payments during the first year you’re in business, they’re required starting in the second year and beyond. How can you possibly know what to pay? They don’t call them “estimated payments” for nothing. You can use last year’s tax return to make an educated guess on your quarterly payments. Or, better yet, trust in the guidance of your accountant to get those quarterly payments estimated and submitted.
Tip #5: Don’t Mix Personal and Business
When you’re first getting started, it’s tempting to simplify your banking and just combine personal and business. Don’t do it! Not only will it complicate your bookkeeping and record keeping, but it can make a mess out of your tax preparation. You need to track and report on individual vs. business income and cash flow. Your accountant can help you set up banking that will work for your day-to-day function, as well as help with accuracy during tax time.
Tip #6: Consider Your Legal Entity
The type of legal entity you choose for your business can impact your taxes. Sole proprietorships, LLCs, S corporations, and partnerships all have different tax benefits and burdens. Make sure you understand the implications of each before setting up your business, or before making any changes to your legal entity. Your accounting team can guide you when setting this up or making changes.
Tip #7: Keep All Your Records Up to Date
One of the biggest obstacles to easy and accurate tax preparation is the failure to keep your financial records up to date. Having the right accounting system is the first step. Make sure you’re tracking everything, including clients, vendors, payments made, payments received, payroll, expenses, budget and overhead to ensure you have all the data and information you need when tax time rolls around.
You don’t need to be afraid of the IRS. If you stay organized and know the basics, you’ll be ready. Click or call 678-990-0924 for a free consultation to learn how getting professional tax preparation can help your business.