Tax Planning Tips for Small Businesses
Business owners are generally required to pay a variety of taxes associated with their business. If the business owner owns real estate associated with the business then property taxes must be paid to the city or county where the property is located. Businesses which engage in transportation, communications or fuel consumption will also be required to pay excise taxes. Some states implement gross receipts tax rather than a state income tax meaning the revenues on your business will be taxes. Most states also require that merchants collect sales tax and pay to their state department of revenue.
Of course all businesses will pay income tax, or the tax on their business revenues minus any deductible expenses. If you are a sole proprietor or partner of a business then you will be required to pay self-employment taxes based on your business income for social security and Medicare purposes. If your business is large enough to have employees, then you will be required to collect payroll taxes from your employee’s paychecks, match some of those funds from your business revenue and send in to the IRS. Unfortunately, the IRS code can be incredibly complex and it can be both frustrating and time-consuming for small business owners to ensure all taxes are paid on time and in the correct amount. If you designate a regular time each month in which you work on business taxes—and nothing else—will keep your business current and ensure you don’t miss any deadlines.
Making Tax Season Easier
To make the tax season less painful, keep your financial records in good shape throughout the year rather than making a frantic, last-minute effort to find everything you need and put it together. Keeping a ledger book of expenses and receipts; keeping everything organized will make it much more likely you will be able to deduct certain business expenses and save some money at tax time. Although it can be time-consuming, try to stay up-to-date on what deductions you are allowed and what you will need to have on hand to prove those deductions. Keep original receipts for entertainment, travel, meals, home office expenses and health insurance if you are self-insured. Although it may sound like an unnecessary expense, hiring a professional CPA to do your business books can not only save you time and headaches during tax season, but can help you make better decisions all year long.
Using accounting software with payroll functions is the easiest way to ensure your payroll records are accurate and effective. Some software programs also alerts the user to changes in tax laws, calculates withholding amounts and provides financial reports to save time during tax season. Online tax filing can also streamline your tax season; online filing is easy, efficient and saves you considerable amounts of time over doing it the “old-fashioned” way. Most tax software programs also offer support should you have any questions or problems during filing.
Business Deductions That Will Save You Money
If you use your car for business purposes you are allowed to deduct a portion of the costs including mileage, toll fees, maintenance and repairs. Some advertising expenses are allowed as are subscriptions to magazines or journals which relate to your business or industry. Travel miles logged for business are deductible as well as specific computer software purchased for your business. If you pay employment taxes, your share is a deductible business expense and health and life insurance plans for your employees are deductible as well. The percentage of your home that is used for a home office is a deductible business expense and all educational expenses related to your business which are used to improve your skills are also deductible. Cell phone usage can now be deducted without the requirement of extra documentation and start-up businesses can deduct up to $10,000 in expenditures. Even if you take advantage of all these tips and are super-organized when tax season rolls around, it can still be extremely advantageous to consult with a tax attorney who can give you extra information regarding your business taxes.