Tax tips to know before you file
Nobody loves tax time. As a small business owner, you’re busy enough without the added stress of filing taxes each year. Unfortunately, filing your small business taxes isn’t optional. The good news is, it doesn’t have to be a huge headache. If you’re looking for ways to save on time and money when filing taxes for your small business, you’re not alone. Here are five tips to help you make tax season less of a headache for your small business.
Hire a tax professional
You may think it’s going to save you time and money to do it yourself but it can cost you more in the long run when you spend your valuable hours working on something that’s not your area of expertise. Not only will hiring a professional save your sanity, the cost of a tax professional is a business expense you can write off (thus lowering your taxable income!).
Using a professional can also make a difference in your tax liability because a pro knows things you don’t, and can recommend the best way to file for your situation. So, while it’s tempting to DIY, seasoned small business owners have learned the hard way that it really pays to hire a professional.
Don’t wait until the last minute
Nobody sets out to be late with their taxes, but it’s easy to put them off when you’re busy running your business. Besides receiving a faster tax refund (or not paying penalties and interest if you owe money), there are plenty of reasons starting early will save you time and money in the long run.
Starting the process early gives you the time you need to gather all the documents and information needed to claim deductions. Since many people wait until the last minute, getting a head start also means you’ll have more time to discuss your financial goals with your accountant. You’ll also save money by avoiding late fees and missed deadline penalties.
Pay your estimated quarterly taxes
What’s better than paying taxes once a year? For many small businesses, the answer is “paying taxes four times each year!” We know, it sounds horrible. Who would want to pay taxes more often than they absolutely have to? But for small businesses, paying taxes all at once can be a large burden.
You can manage your cash flow and make sure you’re not stuck with a giant bill by setting aside money each month and paying federal and state quarterly estimated taxes. If you decide to hire a tax professional, this person can calculate your company’s estimated taxes and help you pay them easily—or even automatically—each quarter. You can even pay both state and federal estimated taxes online using an electronic bank transfer at no extra cost or with a credit card if you choose (typically with a processing or convenience charge).
Stay organized to save time filling your small business tax returns
You don’t want to be caught scrambling to find important information and documents when tax season rolls around. You can save time (for yourself) and money (on your tax professional) by staying organized throughout the year.
- Keep clear records of all business income and expenses
- Preferably, use a bookkeeping system that syncs with your credit cards and bank accounts
- Use separate bank accounts and credit cards for your business and personal expenses. Small business owner tip: you don’t necessarily have to open a credit card in your business’ name, as long as you dedicate one of your cards solely to business use.
Best case scenario, staying organized helps you move more efficiently through tax season. Even in the worst case—a dreaded IRS audit—all this organization will pay off as you’ll be confident your books are in order and that your tax returns were done correctly because your tax professional had a clear picture of your business financial records.
Classify your business correctly
One of the first orders of business after starting your own company is to choose a business structure. Whether you operate as a sole proprietor, partnership, LLC, or another type of business, the way you classify your company has a lot to do with how much you pay in taxes. Failing to classify your business correctly can result in overpaying on your taxes. If you are unsure if your business is correctly classified, consult your accountant or attorney for guidance.
While it’s always best to start off right, one nice thing about taxes is they can be amended and corrected. If you started your business recently and think you may have not filed correctly, it may not be too late to request a change. Talk to your accountant to see if filing your business taxes in a different way could save you money.
Tax season doesn’t have to be a burden for small businesses
Tax season happens every year, whether you feel prepared or not. As a small business owner, these tips can save you time and money by allowing you to spend less time worrying about filing your taxes and more time running your business. We won’t say following these tips will make you enjoy tax time, but being prepared can at least help you dread it a little less.
Thanks for reading! Please note that this content is intended for educational purposes only. As laws change regularly, you should refer to your state legislation and/or an advisor for specific legal counsel. If you’re a small business owner, learn more about workers’ compensation insurance or check your current rate in 3 minutes.