Tips To Prepare Tax For Your Small Business

Tax season is upon us and that means many business owners, entrepreneurs especially, the next couple of weeks will be spent going through their documents and examining receipts to get genuine and in-depth perspective on how the tax deduction charges should be carried out of regarding the organization’s finances over the last 12 months.

During the last 4 years running a small industry, I’ve discovered quite a lot of techniques assisting me to advance my business to the next level, but along with the breakthrough came some predicaments. For example, I’ve realized that paying self-employment tax as each an employer and worker is an actual bummer. In addition, I also noticed that paying taxes are a lot more complicated for self-employed that they are for employees.

With an eye toward preparing well for this year and with less to prepare next year, here are 5 simple tips for small businesses to prepare for the tax season.

With an eye toward preparing well for this year and with less to prepare next year, here are 5 simple tips for small businesses to prepare for the tax season.

#1. Get a business credit card

Try as much as possible to put business expenses on a business credit card. Failing to do so is a mistake most entrepreneurs make. Taking this procedure ensures three things. First, it’s much easier to keep your company’s expenses separate if you use a business card. Second, if you do pay interest from time to time, it’s very difficult to separate the interest expense between personal and business purchases. And finally, some of the better business credit cards offer some excellent rewards, including cash back or travel rebates. You’re going to spend money on your company, so you might as well get some perks from your card.

#2. Hire a tax accountant

Using an accounting software and accountants is a crucial step. While you can prepare your own taxes, for most companies hiring a tax accountant is the smarter move. A tax accountant will likely find deductions you might miss, and they will reduce the chances of making a costly mistake on your returns. If you do decide to do it alone, make sure to purchase reliable tax software such as TurboTax for business.

#3. Make use of your deductions

When tax season is approaching, one should keep in mind that tax rules are not just regulations to be followed; they are also a list of incentives to be used to your advantage. Paying tax isn’t just about the government getting its due.  In fact, many tax rules are exemptions and allow for deductions. They are essentially ways for the government to try and get you and your business to spend money the way the government wants. Often what the government wants you to spend money on is also what you want or even need to spend money on.

#4. Keep meticulous records

Record keeping is the key aspect to maximizing small business tax deductions. Logging your receipts and deductions throughout the year not only allows you to prove your write-offs, it also helps you remember them in the first place.

Meticulous record keeping is particularly important to provide proof of the deductions that you are taking for your small business. If audited, you will need to back up every deduction that you have claimed. Receipts, logs, financial statements, invoices and several other documents must be saved.

#5. Tax credit and tax deductions

The deduction, however, isn’t limited to a full room. Your home office can be part of a room. Just how much of the space is deductible? Measure your work area and divide by the square footage of your home. That percentage is the fraction of your home-related business expenses- rent, mortgage, insurance, electricity, etc.- that you can claim.

It’s important to understand the difference between these two terms. A tax deduction reduces an amount that is subject to tax. If your profit was $100,000 and you subtract a $20,000 deduction for equipment depreciation, for example, your adjusted profit is $80,000. You would pay tax on $80,000, rather than $100,000.

Take note of all of these tips as you plan for your taxes at year-end. You may be able to reduce your tax liability and make some effective tax plans for next year.

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