Do you pay taxes for your business? Then you already know the challenges of handling tax responsibilities if the correct measures aren’t in place. Tax handling can be hectic, especially for companies that deal with different products or those having several branches in other states. A small tax mistake may end up costing you money through penalties and the risk of losing your licenses. So, how do you prepare and handle your taxes well? Here are some six tips to guide you.
Most business owners end up not hiring accountants when recruiting employees, hoping to independently carry out the account procedures. Such practice ends up making the business owners have hectic times when it comes to handling taxes. While it’s a cost-cutting measure not to hire all types of employees, accountants are essential in any business since they prepare financial statements and help the business file its taxes appropriately. The accountant must work with the business all-year round advising the management on income and expenditure to ensure the company doesn’t run at a loss or get penalties due to late or wrong filing of taxes. All financial processes of any business need to be taken by a competent accountant.
If you are a self-independent contractor or someone who runs their own business, it is advisable to claim all the income reported to the IRS. When you do business with another company or all the money you receive gets reported to the IRS through the 1099 forms, you also get a copy. You might be wondering what’s a 1099 form. The document notes that the person you did business with paid you a certain amount of money. Ensure the income you report to the IRS matches with the reports. Any slight difference needs to be corrected since it can create issues that you will have to pay. Report any income even if you didn’t get the form.
Records are vital to any business, and you must keep them well, even if the tax period is over. Keeping these records will ensure your tax records are well-kept and that you can refer to them in case of any issues arising from your filing. When you fail to keep such records, two things might trail you; either you forget to include some tax deductions or make errors, which will make the taxman audit you. If you are in a position, invest in record-keeping software that’s user-friendly, cheap, and effectively helps you keep the records. You can also scan and store images of susceptible records.
Even if you are an entrepreneur or independent contractor, never mix the personal expenses with that of the business. Mixing such documents may create inconveniences when reporting or paying taxes and might lead your business to audit. Experts recommend keeping personal receipts away from business receipts since they can lead to issues when the taxman comes around to audit you, regardless if you filed everything as required. To be safe, get a separate bank account and credit cards for your use and the business.
It would be best to incorporate all your business expenses to come up with a distinctive net profit. Most businesses do not consider the little costs when calculating their profit, making them run at a loss. Gross profit is what you get after selling an item higher than how you bought it. Net profit gets obtained after deducting all business expenses incurred in selling the product. Your taxes should be incorporated in the gross profit, to avoid your business running at a loss. Know what your earnings are, to keep your business at a profit even after paying taxes.
When you don’t classify your business as required, you will end paying more taxes than needed. Why is it so? The reason is that each classification has its type and rate of taxes to pay. There are different classes of business. We have a sole proprietorship, Single Member LLC, Limited Liability Company, Limited Liability Partnership, and corporation. Register your business according to its class to avoid tax issues. One way of knowing which type to register your business is by consulting your attorney or accountant.
Other factors you need to consider in effectively handling your tax responsibilities include managing your payroll well if you have employees and having the right plan for growing your business. When you practice ideas explained in this article, you will end up paying the required taxes on time, thus avoiding penalties or risking losing your venture.