Here’s why a nightmare tax season is ahead for tiny businesses

Many people don’t consider their taxes until tax season rolls around. But as a small business owner, you can’t afford to leave it until the last minute. Running a business is hard enough without stressing over filing taxes!

What you need are some tax tips for small businesses. With this guide, you can take the complexity out of preparing your tax return and even save some money in the process. Keep reading to learn more!

1. Prioritize Record-Keeping

When it comes to small business taxes, one of the best things you can do is to prioritize record-keeping. Record every business expense in your accounting software – don’t get lazy! When you neglect to record an expense, you might as well be throwing money in the trash.

The IRS defines tax-deductible business expenses as those that are “ordinary and necessary.” Office supplies, business travel expenses, repairs, maintenance, and credit card processing fees, for example, are all tax-deductible.

Your taxes are based on your taxable income, or your revenue minus deductions. With that in mind, the more deductions you can claim, the less your taxable income and tax liability will be.

2. Keep Your Expenses Separate

While there are tons of deductions that you can take advantage of that will make saving on taxes easy, it’s essential that you don’t claim too much.

Your personal expenses must always be kept separate from your business expenses. When you mix personal and business expenses, whether accidentally or on purpose, you risk getting in major trouble with the IRS. Not to mention, keeping track of your finances will be that much more difficult.

Your business should have its own bank account and credit card, separate from your own. Any time you need to spend money on your business, only this account should be used.

3. Hire an Accountant

As a business owner, it’s important to accept that, no matter how much you would like to be able to, you can’t do it all. Hiring an accountant can be a huge help for your business and save you a great deal of unnecessary time and effort.

Now, you shouldn’t hire just any accountant. To maximize the benefits, you need to hire the right accountant.

They should not only prepare statements and file taxes for you, but also track yearly income and spending, monitor profits, and help you create a business plan that allows for both survival and growth.

If you need help finding an accountant, check out https://www.taxfyle.com/tax-preparation-outsourcing for more information.

4. Research Tax Credits

Along with tax deductions, you should also research any available tax credits. These offer even more benefits than deductions and can drastically reduce your business income tax liability and overall tax bill.

Not all businesses quality for tax credits, but a few common means of getting them are through offering subsidized health insurance, pension plans, childcare services, and/or paid sick leave.

5. Classify Your Business Correctly

Classifying your business correctly might not seem that important, but it can actually have a large impact on your tax bill. Don’t overpay on your taxes!

There are several different classifications of small businesses, including:

  • C Corporation
  • S Corporation
  • Limited Liability Partnership
  • Limited Liability Company
  • Single Member LLC
  • Sole Proprietor

If you have any doubts about the classification of your business, don’t hesitate to reach out to an attorney. Yes, it’s a small investment, but filing your business under the correct classification can save you more than you think on your taxes.

6. Understand Net Income

Another common reason business owners overpay their taxes is that they claim the incorrect amount of income. More specifically, they claim far too much.

Let’s say, for instance, that you sell refinished furniture. You might buy an old coffee table for $200, fix it up, and sell it for $500, so you calculate $300 in net profits.

But in this equation, you didn’t include your expenses! How much did you spend on materials to fix the coffee table? If you spent $100, your net income has now dropped to $200.

It’s crucial to have a thorough understanding of your net profits, not just gross income. This is one of the reasons why record-keeping is so necessary!

7. Take Advantage of Home Office Deductions

Let’s talk about specific tax deductions common with small businesses. Running your business out of your home is a great way to save money on overhead expenses. And you can save even more by taking advantage of home office deductions on your taxes!

There are, of course, rules that have to be followed with your home office. You can’t claim your entire house unless you rent a second apartment only used for business.

No matter what, your home office can’t be multi-purpose. If you’re going to claim a home office deduction, your office can’t be a workspace/home gym.

8. Deduct Business Use of Your Car

If any portion of your business requires travel, you can deduct the business use of your personal car from your taxes. Again, this requires diligent record-keeping.

You need to know the exact number of miles used for business vs. personal use to be able to calculate eligible car expenses. For those who don’t work from home, keep in mind that your commute to and from the office doesn’t count.

Simplify Your Finances With These Tax Tips for Small Businesses

As a small business owner, you have a lot on your plate. And with so much to juggle, it can be tough to keep your finances as organized as you should.

By using these tax tips for small businesses, you can simplify your finances and take the guesswork out of paying your taxes.

Looking for more tips and tricks for optimizing your business? Be sure to check out our blog!

Leave a Reply

Your email address will not be published. Required fields are marked *