Around half of Americans either own or work for a small business. Small businesses also create two out of every three new jobs in the US every year. But a lot of your company’s continued success depends on how well you handle your taxes.
As Benjamin Franklin famously said in 1789, “nothing is certain except death and taxes.” And don’t small business owners know it!
While there’s nothing you can do about the inevitability of paying tax, following smart tax tips can help you manage or even reduce your tax burden and improve cash flow.
Let’s take a look at some of the best tax tips for businesses around!
1. Work Closely With the Right Accountant
The survival and growth of your business depend a lot on your accounting so it’s important not to let things slide. And, if that means finding a new accountant, so be it.
Small business accountants need to do more for their clients than prepare financial statements and file taxes. If your accountant only offers these services, they aren’t the right fit for your small business.
The right accountant will be available to work with you throughout the year. Their role includes tracking your income, spending, and cash flow, so it’s vital that you both stay on top of everything with regular meetings and communications.
2. Select the Correct Business Classification
PLC, INC, LTD…what’s in a business name? A lot, it turns out, when it comes to the effect it will have on your taxes.
Not giving your business the correct classification could result in paying the wrong taxes. This is because different business classifications have different tax responsibilities. Some classification options include:
- C. Corporation
- S. Corporation
- Limited Liability Partnership
- Limited Liability Company
- Single Member LLC
- Sole Proprietorship
To find out which of these is the correct classification for your business, you’ll need to consult your attorney and accountant. And, should your business circumstances change in the future, make sure you update your classification if necessary to avoid overpaying or underpaying taxes.
3. Keep Accurate Records
The only way to ensure your tax return is correct at the end of the year is to always keep thorough and accurate records.
Keeping sloppy records could mean leaving tax deductions on the table. Or worse, you might put yourself at risk for an audit. Don’t depend on your accountant to do everything for you, either. As well as working with your accountant throughout the year, you’ll need to take responsibility for your own records by investing in some basic accounting software. This is the only reliable and efficient way to keep track of all of your income and expenses.
4. Keep Business and Personal Spending Separate
One of the most fundamental small business tax tips that you follow is to always keep business and personal spending separate.
If the IRS ends up auditing your business and finds personal expenses mixed together with business expenses, they could start looking at your personal accounts and finances. Even if you’ve reported your business expenses with complete accuracy, the IRS will want to dig deeper.
Using your personal credit card for business expenses might be convenient, but it’s bad business practice. And personal charges on your business account likely violate the terms and conditions of your card agreement. Always get a separate bank account and credit card for your business and remain diligent about only ever using these different funds for their intended purposes.
5. Report All Income to the IRS
As well as your expenses, the IRS will want to take a good look at your income to make sure you’ve declared everything.
The IRS will get a copy of the 1099-MISC forms you receive. This allows them to match the income you’ve reported against what they know you have received.
To ensure your records match theirs, report the same income as those stated in the 1099s you received. Failing to do this is a red flag for the IRS. Even if a client doesn’t send out a 1099 form, you still need to report that income to cover your bases. The same rules also apply to state taxes.
6. Take Advantage of Tax Deductions
Business tax advice can get confusing when it comes to knowing which tax deductions you might be eligible for. Not least because each tax deduction has its own specific rules and many won’t even be relevant to your business. But, while you’ll need to consult an expert before you apply, this list of tax deductions should shed some light on this often confusing topic.
You won’t get very far with your application unless you document everything, though. As well as keeping a thorough record of receipts and expenses, make sure to note the business reason for the expense. Documenting all this on your accounting software will help streamline the process and make it simpler to take advantage of any tax deductions that apply to your business expenses.
7. Check Your Eligibility for Tax Credits
As well as deductions, businesses performing certain incentivized activities can qualify for tax credits. These offer a dollar-for-dollar reduction in tax liability and are often more beneficial for a business than deductions.
For example, the Research and Development tax credit is a significant federal tax incentive that could be worth thousands or even hundreds of thousands of dollars per year to your company. But you’ll need an engineering-based R&D tax credit study to claim the credit. Click on this link: https://tri-merit.com/services/research-and-development-tax-credits/ for more advice about tax for business owners and how tax credits could help you.
Follow These Tax Tips for Business Success
There’s no doubt that keeping on top of your taxes can be taxing.
But, with these tax tips to help you, you should now feel more confident in your ability to keep accurate accounts and tax records. You never know, your thorough documentation might even help you qualify for tax deductions or credits this year!
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