Filing taxes does not have to be as tedious as it seems to be. The key is to learn how you can manage your business and take care of the taxes without compromising either. While the exact tax amount varies from state to state, it is one of the largest costs small businesses have to incur. So, you need to ensure that you take all the right steps to reduce your tax bill and achieve the maximum returns as much as possible.
Here are the seven best tax tips to make things easier for you.
Work with an accountant
Preparing for tax returns is no easy feat, especially if your business is new in the market. It can be overwhelming to run a business amidst the complexity of filing taxes.
Thus, it is recommended to work with an accountant so you don’t have to go insane while managing taxes at the last minute. You can then focus on the more crucial parts of your business and help it grow rather than working on financial statements.
Keep business and personal expenses separate
Create a new bank account as soon as possible after starting your new business. Businesses often fall into tax trouble because the IRS found commingled money in the business account. It is quite a concern even if you have a perfectly calculated expenditure report. Thus, keep both accounts separate so you have accurate records for each.
Maintain accuracy
The IRS goes through the financial records strictly to look for miscalculations or discrepancies. You must maintain 100% accuracy in all the financial records for your business. You can crosscheck your income and invoices with the banks' statements to make sure everything is in the right order. That way, you can evaluate the records and find the exact information to prepare taxes. You can also get it checked by tax professionals out there so you can submit a 100% perfect report to the IRS.
Check the relevance of your business structure
The right business structure can help you save taxes at the end of the year. Small businesses, for instance, usually are considered pass-through entities where the business and owner are one taxpayer. You can categorize your business into a C Corporation, S Corporation, Single Member LLC, Limited Liability Partnership or Sole Proprietor. If you don’t have the knowledge regarding this, you can consult with an accountant or attorney to classify your business in the right way.
Keep track of all expenses
Any ordinary and necessary business expense is a tax deduction. Ordinary expenses are the ones used by other businesses as well in your niche. Necessary expenses are the ones that help you grow your business.
Unlike credits, tax deductions reduce your taxable income. The taxable income of a company is the difference between revenue and deductions. If you want to maximize deductions, you should focus on reducing your taxable income and tax liability. The problem here is most owners cannot determine which expense counts as a business deduction. You should do your research or consult with a tax professional.
Always prepare in advance
You don’t have to rummage through heaps of paperwork when the tax time rolls in if you have already prepared for the same in advance. Sounds right? What you can do is talk to your accountant and plan your taxes thoroughly. Try to adjust the taxes on a quarterly basis. If you already have your numbers at hand, talk to your accountant to learn how you can reduce your profitability without getting in trouble.
Balance salary and dividends
Most business owners pay themselves a salary or dividend. Both of them have their own pros and cons. Salaries, for instance, help you max out your retirement funds. Dividends, on the other hand, are taxed at a lower rate as compared to salaries. A professional tax accountant can guide you on this matter and help you make the best decision for yourself.
The tax season is a nightmare for a lot of business owners. But, it is also a crucial part of running a business successfully. Thus, you can follow the above-mentioned tips to get the taxes right without making it an additional burden. Remember, there are several experienced accountants who can help you achieve your financial goals.
Is It Worth Hiring Accountants?
Accountants are professionals who have gone through years of education and training to provide you with comprehensive accounting help. They are adept at analyzing your accounts, financial statements and auditing. Identify what you are looking for and let them know about your expectations.
It takes a lot of time to manage all the aspects of accounting in a business. As a small business owner, you would want to devote your time to growing your business and not just managing taxes or accounts. And hiring an experienced accountant can help you with that.