For most small business owners, owning and running a business of their own brings about a pride and joy like no other – along with the dreaded and worrisome fear of tax time. Taxes generally account for the majority of a small business owner’s yearly expense. But with some important tips and tricks, you can gain control of your tax situation and put more of your hard-earned dollars back into your business. If your business structure is a sole proprietorship or partnership, you may want to consider the advantages of incorporating your business. Not only will you enjoy the benefits of limited personal liability, but corporations will generally pay less in taxes, namely the self-employment/FICA tax.
In addition to the family and personal benefits, home-based businesses also share in the benefits of lower tax obligations, so consider operating your small business from your home office. Not only will you keep your overhead expenses down, but it will allow you to deduct the business use of your home, provided that you have a separate space in your home solely for the operation of your business.
Make a habit of donating unused goods, equipment, supplies or other items to recognized charitable organizations, as these are tax deductible. Be sure to obtain receipts for any such donations so that your generosity will be awarded at tax time. Similarly, gifts of appreciated stock are also highly deductible-friendly, as you earn a deduction on the amount that the stock grows, not on just the price that you purchased the stock.
Organization is key to saving precious dollars at tax time. Not only does it ensure that you’ll be well equipped to handle an audit if the situation arose, but meticulous record-keeping makes it possible for you to easily spot an expense that can be used as a deduction on your taxes. All canceled checks and receipts should be sorted monthly and organized into piles of “deductible” and “non-deductible”. Be sure to look for any entertainment or social expense that you might be able to use as a business deduction, keeping in mind that you must show that the expense served a business purpose and the names of the clients, customers or business associates involved. Keeping and organizing all receipts, credit card statements and appointment calendars will come in handy with recollecting and supporting these business deductions.
Procrastination will cost you! Don’t wait until April 15 to meet with your accountant and file your business taxes. Early consultation with your accountant and filing your tax returns on time will ensure that you will have plenty of time to submit any tax payments before the due date. Any payments received after the due date will incur penalties, interest and late charges, even if you file an extension.
Get to know your business and its profit and loss standing. Determining your company’s profit and loss standings will allow you to make some tax-saving moves throughout the year. If your business shows a profit, consider purchasing business assets and additional equipment before the end of the year. Remember, save your receipts! This can create business deductions and lower your taxable income.
If you receive a salary from your business, compare the amount you were paid in relation to how well your business is doing. Depending upon your profit/loss standing, you may wish to collect additional income or a bonus, or stop receiving any further salary until the beginning of the next tax year.
Make a point to review and analyze your current list of customers with outstanding balances, as well as other accounts receivable owed to your company. If any of these outstanding debts can be deemed uncollectible, you can discharge these uncollectible balances and deduct them as bad debts on your tax return.
If you paid employees and staff members at any time during the year, make sure to file all payroll reports at the end of the year and submit W-2 forms in January. Overlooking these crucial steps could possibly result in oversight of employee taxes, and the added expense of penalties and fees later on.
Make tax time a year-round concern, instead of a one-time worry. Most small business owners only worry about tax issues during tax season, but proper planning throughout the year will result in a more efficient filing, a better knowledge of your business operations and huge savings at tax time. Take note to watch out for and document all business and personal expenses that can be used as business deductions, make plans for business investments and donations and perform all business operations with the ultimate goal of tax savings in mind.
With a little year-round planning, keen eye for expenses and tax-saving maneuvers, you can make your business tax experience one that is beneficial to your company and less stressful on you as its owner. Keeping a tax-friendly mindset during your company’s operation throughout the year will help turn April 15 into one of your most favorite days.