Tax season is always a time that can be stressful, especially if you’re running your own business. You already have a lot on your plate and taxes only add to it. Fortunately, there are plenty of tips available to help your business successfully navigate tax season.
Consult a Tax Professional Regularly
When running a business, you have a lot to worry about and not much free time on your hands. Taxes will take a lot of time to complete properly. Consulting with a tax professional can be very beneficial to this process. A tax professional can do everything from offer advice to preparing your tax forms. Another benefit of having a tax professional assist you is they can point out deductions that tax software may have missed. You can be reassured that your taxes are in good hands. Having a tax advisor is also helpful so you can be aware of any changes that have been made especially if laws are updated. Your tax advisor can keep you on track.
Reduce Your Liability
When it comes time to do your taxes, you will be responsible for your tax liabilities. These tax liabilities are anything you will owe in taxes. You will want to reduce this amount if you can. One way to do this is through deductions. Businesses are qualified for many deductions that they may not be aware of. This could include tax write-offs for cell phone bills or travel time. It’s important to look into all tax deductions that may apply to you. This is one of the main reasons it’s useful to consult a tax professional. Another way to reduce your tax liability is by investing in your employees. Specifically, you should invest in their benefits. If you offer raises to your employees, both of you will need to pay taxes on the money. However, putting that money towards employee benefits, such as healthcare, is more beneficial to both of you. It may even be a tax deduction for you.
Keep Careful Financial Records
Taxes need to be exact and specific. To properly fill out your taxes, you need to have accurate financial records that you can reference. You should continually be filling all your records and keeping track of them, so they are available during tax seasons. Keeping careful records can also be helpful in the future. You should keep your accounting records for 7-8 years so that you have the proof you need to make corrections or back up your statements if you discover an error in your taxes or if the IRS thinks you’ve made a mistake. Your records show you what has happened within your business financially and it’s important to hold onto those records.
Make Sure Your Business Is Structured Correctly
The structure of your business can have a large impact on your taxes. In some cases, it may be better to restructure your business for the sake of your taxes. There are six main business structures. A sole proprietorship is when you own a business, and the income of the business is your income. This makes filing your taxes fairly easy, but you will have personal liability. With a partnership, you can see more flexibility in your business and taxes, but you also face liability and may even be responsible for your partner’s debts. A Limited Liability Corporation consists of several members and the liability is shared more evenly and it’s quite flexible. Cooperatives are made up of people who have purchased shares in the business. This type of structure is very democratic, but it also means one vote can put a hold on things. Finally, there are C Corporations and S Corporations. Both of these are primarily controlled by shareholders and these shareholders are typically the ones taxed.
Create a Plan
Taxes can come with a lot of stress, especially if you handle them all at once. It may be in your best interest to create a yearly plan for your taxes. This way you can evaluate your business and anticipate your financial situation for the next year. One option you can consider is spreading out your taxes. In some cases, you can pay your taxes quarterly instead of all together. This can help spread out the financial burden of your taxes. If you are working with a tax professional, talk with them to see if this is a potential option for you.
Give to Charity
It’s no secret that donating to charity can be written off as a deduction in your taxes. Make sure you are donating to a qualified organization or else you may not get a deduction. It’s also important to think about the other reasons you are donating. You shouldn’t donate just for the sake of a tax deduction. Found an organization that you care about. In fact, it might be best to choose one that is relevant to your business or important to your clientele. Overall, there are many benefits of donating to charity.
Plan Your Purchases
As mentioned, there are plenty of deductions available to you. However, you also need to plan out your purchases or deductible actions. If you want something to apply to your taxes, you need to make sure you do things before the end of the year. For example, if your business needs new equipment, get it sooner rather than later so it will apply to the current year’s taxes. The same goes for charitable donations and other actions.
Use Tax Software
If you have a smaller business, then using tax software may be sufficient for you. This software can help you navigate your taxes, and it will be much cheaper than hiring an accountant to do it for you. Just be aware that there still are risks of mistakes being made. Thoroughly research different tax software options before settling.
When doing your taxes, it’s important to be informed. Taxes are complicated, but if you know what you’re doing then you can greatly benefit your business. Do all you can to be aware of helpful tax tips.