12 important tax season considerations for small businesses
What are the most important tax season considerations for your small business this year?
To help small business owners identify the important tax season considerations for their venture, we asked founders and CEOs this question for their best insights. From having a separate bank account to donating stocks instead of cash, there are several simple considerations that may help your business during this year’s tax season.
READ ALSO: How capital gains taxes affect home sales and how to avoid them
Here are 12 key tax season considerations for your small business:
- Have a Separate Business Bank Account
- Hire An Accountant
- Incorporate and Classify Your Business Properly
- Ensure Payroll Accuracy
- Gather Your Data
- Industry Specific Deductions
- Track and Maintain Accurate Records
- Understand Sales Tax Requirements
- Get All Your Documents in Order First
- Don’t Forget Travel Expenses
- Type of Tax Form
- Donate Stocks Not Cash
Have a Separate Business Bank Account
Make it easier for yourself and your accountant by separating your personal and business bank accounts. In addition to helping you keep everything organized, you can more easily write off business expenses by keeping your accounts separated. Plus, if you face an audit, the IRS can look at both your company and personal records if you mix your finances. It’s better for everyone to keep them separated.
Alisha Taylor, Alisha Taylor Interiors
Hire An Accountant
Hiring an accountant can help your small business tackle tax season with far fewer headaches. Trying to handle your business’ taxes yourself while also running that business can pull you in too many directions. Having an accountant will help you track income and expenses throughout the year, which will give you a better picture of where you stand at tax season without having to do the math yourself.
Henry Babichenko, European Denture Center
Incorporate and Classify Your Business Properly
When your business is incorporated and classified properly, you open up the opportunity to claim tax breaks that unincorporated businesses cannot take advantage of. For example, self-employed individuals who incorporate can reduce their overall tax burden. Incorporating can also allow you to carry losses forward, lowering your business’ taxable income. No matter how small your business is, you should incorporate.
Allan J. Switalski, AVANA Capital
Ensure Payroll Accuracy
You need to have a payroll system to ensure your employees are being paid on a regular basis, but it also helps both you and your employees stay on top of tax obligations. By maintaining payroll, you can be sure that everyone’s W-4 forms have been correctly filled out, and that you’ve been withholding the proper amounts from their paychecks. Come tax time, having a payroll system will also make it easier to calculate deductions.
Randall Smalley, Cruise America
Hiring a reputable company to help with payroll saves money, and ensures you are remitting the correct payroll taxes for the business. The IRS generally checks every quarter to make sure that all payroll taxes have been paid. By leaving payroll to the professionals you can get on with what you do best.
Saskia Ketz, Mojomox
Gather Your Data
Before you can file your small business taxes, you need to gather all of the relevant data. Hopefully, you’ve been tracking your income and expenses, as it’s this information you’ll be using to file taxes. Collect everything from sales receipts to payroll records, any professional fees you pay, and so on. Don’t try to file taxes until you’re certain you’ve gathered all of the relevant data from your business operations.
Vanessa Molica, The Lash Professional
Industry Specific Deductions
According to the IRS, you can deduct expenses that are ordinary and necessary to the business. This means that if an expense is common and accepted in your industry, you can deduct it. Also, if it is appropriate and helpful for your business, it is considered necessary, and you can deduct it. Deductions can reduce your business’ taxable income, so it’s in your best interest to know which expenses are deductible and which aren’t.
Rod Cullum, Cullum Homes
Track and Maintain Accurate Records
Good records help you monitor your business, prepare your financial statements and other documents, and assist in tracking taxable income sources and deductible expenses. By tracking and maintaining accurate records throughout the year, you make life easier for yourself. Keeping accurate records ensures that no tax deductions or credits are missed when it comes time to file.
Chris Abrams, Marcan Insurance
Understand Sales Tax Requirements
As a small business owner, you have to not only know what is taxable, but what the sales tax rates are for your city and state, how to calculate those taxes, and how to report them. You also need to know what items may be exempt from sales taxes. This knowledge will help you when preparing and filing your small business’ sales tax return each year.
Lily Yu, Oak Springs Realty
Get All Your Documents in Order First
Make sure that you have all of your documents organized and in order before you begin to file your taxes. This should be the first step you take when it comes to preparing to file. When you have all of your documents ready to go, it will make the entire filing process go more smoothly and will alleviate some stress since everything is already together in one place.
Mark Pierce, Cloud Peak Law
Don’t Forget Travel Expenses
If you’re a small business owner that often travels for work, you can deduct your expenses for business travel on your tax filings. Though you can’t deduct any personal travel expenses you incur, you can maximize your money by combining personal travels with a justifiable business purpose. You’ll get the best of both worlds and minimize your costs and taxes owed.
John Li, Fig Loans
Type of Tax Form
One thing to consider is how much you anticipate earning because it can affect the type of tax form and options available to you. If your net earnings are $400,000 or less, someone in charge of completing your taxes may recommend using Schedule C which will allow for a more accurate calculation.
Jar Kuznecov, Water Softeners Hub
Donate Stocks Not Cash
Instead of contributing cash to charitable organizations and claiming tax deductions, donate appreciable stocks instead. You can deduct the stock’s current worth at the time of the donation rather than the initial price you paid per share. If you need to see more deductions and your business holds stocks, part with them by donating before you file and maximize the positive impact on your business’s taxes by deducting the stock’s total value.
Cliff Auerswald, All Reverse Mortgage
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