Managing taxes is perhaps the most painful part of running a small business. The pain extends beyond having to pay a significant part of your earnings to the government. Even the complexity of filing taxes year after year can be daunting. The only way to ease the process is by being prepared. You can do it by working with your accountant around the year instead of making a last-minute rush. Luckily, several things can get your small business ready for tax time. Let us share a few that keep your small business stress-free as the deadlines come near.
Correctly classify your business
Even as you run a small business, classifying it as an entity determines your tax liability. Decide whether it falls into the category of Sole Proprietorship, Single Member LLC, Limited Liability Company, Limited Liability Partnership, S Corporation, or C Corporation. Failing to classify your entity could lead to overpaying taxes. Consult with an attorney to pick the apt one from the start.
Maintain adequate records
Ensuring a correct tax return requires you to keep accurate and adequate records throughout the year. Inadequate record-keeping means you may end up missing out on deductions and overpaying taxes. Even worse, you may put yourself at risk for an IRS audit. Manage your accounts by keeping track of your income and expenses throughout the year. Every entry matters, no matter how insignificant it may seem, so miss out on nothing.
Collaborate with experts
Small businesses run on tight budgets, making it hard to hire an in-house team to take care of taxes and accounting. Consider collaborating with experts who cover you on all fronts, from cleaning up your books to tracking income and spending and monitoring your gross and net profits. Look for someone who also helps you with strategic tax planning to reduce your bill at the end of the year. They can give you pointers regarding reducing your income, increasing your deductions, and utilizing credits.
Separate business from personal expenses
Mixing your personal expenses with business expenses is the worst mistake from a tax perspective. If the IRS audits your company and finds such discrepancies, you can land with a massive penalty. Ensuring having a separate bank account for your business in the first place. Never use personal accounts for business expenses because the last thing you want to encounter is a penalty for mixing things up.
Small businesses have fewer employees on board, so it is easy to go slack with payroll accounting. But not being regular with your payroll taxes can lead to problems and penalties down the line. The IRS typically checks them every quarter to ensure you are on the right side of the law. Hire a payroll expert to steer clear of such issues, even when operating with a small team of employees.
Taxes are as much a concern for small companies as for large enterprises. You may take them easily during the year and rush for help when the deadlines arrive. Experts recommend planning and preparing throughout the year instead of dealing with last-minute hassles..