Taxes are an integral part of running a successful business, whether you’re just starting out or expanding your current one. Understanding your tax situation will enable you to better manage it.
Your company structure may necessitate paying federal income tax or another type of state or local tax. A qualified accountant or tax specialist can guide you through these complex regulations.
1. Know Your Taxes
Running a small business can be an enormously daunting endeavor. You must develop excellent products or services, craft an effective marketing plan and ensure your customers are completely satisfied.
Not only that, but you must also manage the less pleasant aspects of running a business – like taxes. That’s why it’s essential to understand your tax obligations and plan ahead for them as early on as possible.
Knowledge of your taxes can save you money and hassle in the future. You may even qualify for certain deductions and credits that reduce taxable income or help reduce tax payments.
To prepare for taxes, start by tracking every income and expense for your business throughout the year. Ideally, have all of your records in one place – invoices, receipts and bank statements included – to easily identify them when filing them.
2. Know Your Business
As a small business owner, understanding your tax obligations is critical for keeping the company running smoothly. Federal and state taxes as well as payroll taxes are based off of your business income and can have severe repercussions if not paid correctly.
Preparing for small business taxes involves tracking the income and expenses of your business quarterly. This can be accomplished using various accounting software programs and apps.
Tracking income and expenses is important, but you should also assess whether you qualify for business tax credits or deductions that could reduce your taxable income. If so, make sure to take advantage of them during the year.
3. Know Your Deductions
As a small business owner, knowing your deductions is one of the best ways to save money on taxes. Unfortunately, many entrepreneurs fail to claim all available deductions.
Tax deductions for business expenses can only be claimed if they meet the IRS definition of “ordinary and necessary.” In other words, the expense must be something you would incur if running your own business.
Tax-deductible expenses that you may be able to claim include office supplies, advertising and marketing costs, travel related to your business venture and more. If unsure what can be deducted, consult with an accountant or financial planner for clarification.
4. Know Your Tax Credits
Many small businesses fail to utilize all available tax credits, particularly those involved in more energy-efficient processes. This can be especially true for those that fail to recognize and claim these incentives.
The Business Energy Investment Credit, for instance, offers a tax credit that encourages business owners to purchase and install equipment or vehicles designed to conserve energy.
Tax incentives exist to encourage research and development activities. For instance, the R&D Tax Credit rewards companies that invest a certain amount in domestic R&D.
Tax credits work differently than deductions, which lower taxable income. For instance, if you owe $15,000 but claim a $500 credit, your final tax bill will only be $10k.
5. Know Your Tax Payments
Taxes are one of the biggest expenses for business owners. Many small business owners find them burdensome and stressful to manage.
The good news is that there are multiple ways to make filing taxes simpler for yourself and your company by planning ahead and paying them on time.
For instance, payroll apps like Gusto, ClockedIn or Homebase can help manage employment taxes and ensure compliance with payroll laws.
Blake suggests setting up a separate bank account and credit card for your business, so all business expenses can be processed through those accounts. Doing this helps prevent the mixing of personal and business funds.
Document all expenses and income received to ensure accurate reporting to the IRS. This documentation could include receipts, invoices, deposit slips, and more.
Ethics of Business and the Importance of Emotional Intelligence in Leadership
Sustainable Business Practices – Strategies For Eco-Friendly Operations
How to Start a Successful Online Business – Step-By-Step Guide