Tax Tips For Small Business Owners

When you own a small business, it can become very stressful during tax season. Whether you’ve owned a company for years or are a relatively new operation, there’s a lot to know to ensure you are meeting legal obligations and saving as much money as possible.

Tax planning and preparation have become a very important priority. This means understanding key deadlines, taking advantage of available deductions and credits, and keeping detailed records throughout the year.

Here are some tips we recommend to help you stay organized and minimize stress during tax season.

Have an Automated System for Recordkeeping

Understanding your business’s financial health is imperative as it helps you make sound business decisions and stay compliant with the IRS. Setting up an automated record keeping system can help ensure accuracy and save time for tax preparation. Consider using accounting software or hiring a professional bookkeeper to maintain your records. Below are some reasons why an expert can make your life a lot easier.

Save time- When you own a small business, you want to focus your energy on growing it and serving your customers. Outsourcing your recordkeeping tasks to a professional allows you to do just that.
Ensure accuracy- Professionals are trained to keep detailed records and stay up-to-date with tax laws. With their help, you can avoid costly mistakes and ensure accurate financial reporting.
Expert advice– A professional bookkeeper can also provide valuable insights into your business’s financial health and recommend cost-saving measures.

Understand and Report all Business Expenses

Many small businesses fail because they don’t understand or haven’t taken the time to understand their expenses. To lower your taxable income, it’s crucial to keep detailed records of all business-related expenses and understand which ones are deductible. Some common deductions include:

Home office– If you have a designated area in your home used exclusively for business, you may be able to deduct certain related expenses.
Travel and meals – Expenses incurred while traveling for business purposes, such as transportation and lodging, can often be deducted. You may also be able to deduct a portion of meals eaten while on a business trip.
Insurance premiums – Certain insurance premiums paid by small businesses, such as health or liability insurance, may be tax-deductible.

A tax professional can help you understand the intricate details of your business. Whether you own a hair salon or a consulting firm, keeping track of all expenses and seeking advice when needed is essential.

Know Which Tax Credits You Qualify For

Many credits are available to small businesses, yet many don’t take advantage. Either they are misinformed or haven’t worked with an expert who understands what you’re entitled to. Examples are explained here.

Small business health care credit—If you provide health insurance to your employees, you may be eligible for this credit, which can cover up to 50% of the insurance costs.
Work opportunity tax credit—This credit provides a tax break to businesses that hire individuals from certain targeted groups, such as veterans or ex-felons.
Retirement plan startup cost credit – Small businesses that start a retirement plan for their employees can receive a tax credit of up to $500 per year for three years.

It’s essential to research and understand all available credits your small business may qualify for. By taking advantage of these opportunities, you can reduce your taxable income and save money on taxes. Additionally, credits can change annually because of tax code changes, so having someone on your team who understands these changes and can give you advice on what credits you may qualify for or what new credits are available is always a smart decision.

Prepare Ahead of Time

Running any size business takes a lot of hard work, dedication, and consistency. However, it’s still important to recognize the importance of understanding your business’s financial side. The following are some tips on how to prepare for filing taxes ahead of time.

Stay organized—Keep detailed records of all your business transactions and expenses throughout the year. This will make tax preparation much smoother and help prevent missed deductions or credits. Important documents include bank statements, receipts, and invoices.
Understand deadlines – It’s important to know key tax deadlines, such as when quarterly estimated taxes are due or when W-2 or 1099 forms need to be filed for employees or subcontractors.
Plan for changes—During the year, businesses often experience changes, such as hiring new employees or purchasing new equipment. It’s important to consider these changes and how they may affect your tax situation.

By staying organized and planning ahead, you can minimize stress during tax season and ensure that your business is in compliance with all legal obligations.

Separating Business and Personal Finances

One of the most common problems for small businesses during tax season is understanding how to separate personal and business finances. One common issue for business owners who use personal funds for business expenses is that this can lead to improper deductions and other complications during tax filing. It’s important to establish separate bank accounts and credit cards for your business, even if you’re a sole proprietor.

Intertwining personal and business finances can make it easy for the IRS to red-flag your tax return for audit. While the IRS does not audit as many tax returns as they used to, if you have abnormal or excessive write-offs, they will send you a notice. Keeping separate records for business and personal finances can help prevent confusion and ensure you accurately report your income and expenses.

Seek Professional Help

Realizing your small business doesn’t have to be an expert at everything is perfectly fine. The reality is that most small businesses are good at what service they provide but need help with accounting and taxes. Forming a good relationship with a tax and accounting expert can make your life much easier. Everything from tax preparation, planning, and recordkeeping can be outsourced to an expert. They also should help you understand your financial position better.

By outsourcing these tasks, you can focus on growing your business and serving your customers while having peace of mind knowing that your finances are in good hands. With the help of a professional, you can ensure accuracy, take advantage of all available credits and deductions, and stay organized ahead of time for tax season.

Key Takeaways

Small businesses need to understand their expenses and which ones are deductible to lower taxable income.
It’s important to research and understand all available tax credits your small business may qualify for, as they can significantly reduce taxes owed.
Staying organized and planning ahead can make tax preparation less stressful and ensure compliance with all legal obligations.
Separating personal and business finances is crucial for proper tax reporting and avoiding potential audits.
Seeking help from a professional tax and accounting expert can greatly benefit small businesses in managing their financial responsibilities.

FlexKeeper Can Help Small Business Owners With Taxes

Do you own a small business and want to make understanding your finances much easier? FlexKeeper offers online tax preparation and record keeping services specifically tailored to small businesses. Our team of experts can help you stay organized, maximize deductions and credits, and ensure compliance with all tax laws. Let us handle the financial side of your business so you can focus on what you do best…running your business! Contact us today to learn more about our services and how we can support your small business’s success!