5 Tax Tips For Small Business Owners
Tuesday, April 25, 2017
Nobody looks forward to doing their taxes. Here are tips for small business owners that will make money management a little easier.
Tax season is a stressful time for everyone, but for small business owners, it can be especially challenging.
Whether you’re among the 84 percent of small-business owners who hire a third party to manage taxes, or you manage business accounting independently, taxes are an unavoidable burden for entrepreneurs.
Here are some tax tips all small-business owners can incorporate to reduce the amount of time and money required to manage them.
Plan for Estimated Tax Payments
Nearly half of the respondents to NSBA’s survey said the financial burden of paying Federal taxes is one of the biggest challenges they face. Though quarterly estimated tax payments are required of business owners, proactive planning can help owners manage their financial implications. When determining
When determining the amount of quarterly payments for the year, establish a schedule to consistently transfer a portion of your business’s monthly income to a business account that is dedicated solely to quarterly tax payment.
Establish an account with The Electronic Federal Tax Payment System tax payment service (offered by the U.S. Department of the Treasury). Once your account is approved, you will receive a PIN, allowing you to schedule automated withdrawal of quarterly taxes from the designated account.
In addition to your state tax liability and estimated payment required, confirm the tax rules for the municipality in which you conduct business/earn income. You may need to pay estimated quarterly city income taxes to your local government, too.
Organize Financial Records Monthly.
Earmark an afternoon at the end of each month to scan receipts (don’t destroy the hard copy) for business expenses you plan to claim. Create a spreadsheet documenting the details of each receipt and its business purpose — keep a tally of monthly expenses relative to income.
Create a spreadsheet documenting the details of each receipt and its business purpose — keep a tally of monthly expenses relative to income. Create monthly folders for your business finances, and store the records in the cloud.
Use apps to help track your business mileage, and upload the data for each month to a designated folder, where you can also record the details of the trip. This system will make it far easier (and less expensive) if you hire a third party to manage your tax filing (that bills hourly), and will require less of your time if you manage tax filing by yourself.
If you are audited, this detailed documentation is also required to substantiate the expenses claimed.
Review Business Finances Before Year’s End.
Review all business finances at least one month before the end of the year to recognize potential opportunities to minimize your tax burden. Base this on sales for the year and expected sales for the coming year.
For example, it may behoove you to accelerate income from one year to the next if you foresee doing more business in the future (and entering a higher tax bracket). Likewise, you may be able to minimize tax burdens with charitable contributions, purchases of business equipment, or by increasing personal retirement contributions.
Because many of these transactions come with the stipulation that it takes place before the tax year ends, you’ll need time to strategize, plan and execute accordingly.
Design Your Workplace Benefits With Taxes in Mind.
Giving employees a raise may seem like the most logical way to reward for a job well done — but there are more ways to provide financial benefits than salary alone.
For example, contributor Jamie Bsales at Small Business Computing says that “fringe benefits” like health and vision care benefits, and child-care assistance give employees financial perks, while also reducing business tax burdens.
Confirm That You Have Tax-Related Information From Employees and Contractors.
For employees who are part of your payroll, you’re required to withhold funds for things like Medicare, Social Security and unemployment from each paycheck.
Secure signed W-9 forms and related tax documents from independent contractors before the tax season begins to ensure you have the necessary information to issue 1099-MISC forms for services performed. This is generally required if you pay them more than $600 in a tax year.
Managing taxes requires a time and financial investment for small-business owners, but some basic planning and organization reduces the burden. Put these tips into action to keep more of your hard-earned money — and significantly reduce time spent suffering through tax season.
From Business.com