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Tax Tips for Small Businesses

One of the most important aspects of running a business is related to taxes. You need to be aware which taxes to pay and when they are due. It can be overwhelming, but planning ahead can help you file on time and claim the right deductions. Here you will find some tips that might help you.

01. Get Organized and Stay Organized

For a small business to run efficiently and generate income, organization is vital. Good tax planning also requires effective organization. First of all, keep very good records of what you spend money on for your business! Keep a daily log of your expenses. Detailed records make your tax return much easier to prepare, plus they are an easy way to clearly see all of your legitimate business expenses.

Clean books and detailed supporting documentation will ensure you take advantage of all tax incentives and avoid late filing penalties, and will keep your tax preparer fees down.

02. Use a Tax filing software

While this recommendation may be a no-brainer for the small business owner interested in avoiding headaches, it’s applicable to even the tax-savviest entrepreneurs; it offers protection a small business owner may not be able to afford otherwise.

Using a bookkeeping service or if you are tackling it yourself, platforms like QuickBooks, TaxSlayer, TurboTax and H&R Block can help you prepare and file your tax return online while backing up that filing with accuracy and maximum-refund guarantees.

03. Know All Deductible Expenses

Normally, businesses are always looking for ways to minimize their tax obligations by taking advantage of all business deductions that are allowable by the government taxing agencies. Make sure to know all deductible expenses that are directly attributable to operating your business and don’t forget to include them when filing.

04. Claim all income that is reported to the IRS

The IRS gets a copy of the 1099-MISC forms you receive so they can match the income you’ve reported against what they know you’ve received. Make sure the income you report to the IRS matches the amount of income reported in the 1099s you received. Not doing so is a red flag for the IRS. Even if a client doesn’t send out a 1099, you still need to report that income. The same rules apply with state taxes.

05. Deduct your home office

Many small business owners operate from offices at home, but not all of them realize they can deduct expenses related to that home office. These can include insurance, mortgage interest payments, repairs and utilities like internet service.

You do, of course, have to determine what portion of your home is dedicated to running your business (the tax software does the mathematical calculation for you), but this deduction can benefit both homeowners and renters. Always be careful with the numbers. A red flag to the IRS for a small business owner is claiming a deduction that exceeds the income of the business for more than one year.

review your reports

06. Keep updated with Payroll Taxes

Payroll taxes can be a common and expensive tax issue for small business owners when they use payroll taxes withheld from their employees to finance business costs. The IRS is always on the alert for this practice. When it occurs, they can assess steep penalties and even go after the business owner’s personal assets.

07. Review Your Reports

How was your year financially? This info is vital for your goal setting process and to ensure your books are up-to-date and accurate. Have your bookkeeper or accountant run all of the reports that are relevant for your business and schedule a time to walk through them together if you need more explanation on the numbers and specific breakdowns.

08. Keep close tabs on all receipts

Receipts create the financial dashboard of how you spent your money throughout the year. Many of those receipts are for goods and services that can be deducted on your taxes, offsetting taxable income. Depending on your business structure, there are specific deductions you can take for certain structures, plus deductions that apply across all structures. Of course, keeping receipts for an entire year is a hassle; many pieces of paper get misplaced or tossed.

However, 1tapreceipts can change that by offering an app that captures, stores and organizes all your receipts in one place. You’ll be able to import receipts from photos as well as forward email invoices from your inbox. The app automatically extracts line items from each receipt using machine learning and artificial intelligence, even if receipts are double-sided. This way, you’ll make sure you obtain proof of, and retain that proof, for every expense deduction owed you. Happily, the app syncs with most tax-filing software.

09- File Your Taxes on Time

It is important to timely file and pay any taxes due, since the Internal Revenue Service can impose late filing and late payment penalties. These penalties will vary based upon the type of business entity.

For example, C corporations can be subject to a late filing penalty and a late payment penalty on any unpaid tax due. Partnerships can be subject to a late filing penalty based upon the number of partners. S corporations can be subject to a late filing penalty based upon the number of shareholders as well as a late payment penalty on any unpaid tax due. State taxing authorities have a similar approach. These penalties can be costly for a small business. Even if you cannot pay the tax, you should still file the tax return on time as it will really reduce penalties and show good faith.

Register your business as an LLC

10- Register Your Business as an LLC

Many small businesses make the mistake of thinking they are “small” and don’t understand the importance of choosing the correct corporate entity. There are several sole proprietors who could benefit tremendously by becoming an LLC. This can potentially eliminate some of the self-employment tax as well as provide other tax benefits, especially since the new tax law was passed.

11- Separate business from personal expenses

If the IRS audits your business and finds personal expenses mixed with business expenses, regardless of whether you reported business expenses correctly, the IRS could start looking at your personal accounts because of commingled money. Always get a separate bank account and credit card for your business and run only business expenses through those accounts.

12- Hire a Tax Professional

Even if you think you can manage to prepare your taxes on your own using one of the do-it-yourself online programs, a CPA or other tax professional is usually more affordable than you think. An experienced tax professional has seen everything and knows how to get you the most favorable tax deductions and benefits. This usually saves the taxpayer or business at least as much as the fee the tax professional charges, plus you get the added benefit of being sure that your returns were prepared and filed properly.

CONCLUSION:

One of the most important tips to save on business taxes is to ensure that you don’t miss out on any qualified deductions. You should be able to seamlessly track your income and expenses throughout the year to make it easier for you to file your tax return. Also, don’t forget to use the other expert business tax saving tips listed above.


It's a Social Media and digital marketing consultant and owner and founder of LFStudio.com. He is also author and entrepreneur. He helps small businesses to grow, get clients and generate income.

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