No matter how we try to forget about it, tax season creeps up fast every year. For small business owners, that means pulling out a pile of receipts and getting bottom-line figures in order. Federal tax laws are forever changing and keeping up with how that affects your small business can be daunting. With a few tips, getting your taxes in order and ready for filing can be a little easier and less stressful.
Small business taxes may be easy for some; however, if your business is complicated or you’re unsure what to do, you’ll need some help. It’s never too late to work with a tax professional. An accountant or tax preparer well versed in small business taxes can be your best defense against making a huge tax mistake.
A tax preparer can help you ensure you’ve filed all forms properly. If you have sub-contractors or employees, or work with multiple vendors, your taxes can get complicated. Additional forms are required the more complicated your business is. Skipping or omitting forms can lead to penalties and improper filing. A tax professional can help ensure all the paperwork is complete.
Additionally, you’ll want to be sure you’re withholding enough cash flow to cover your tax liability, as well as taking as many appropriate deductions as possible to lower your tax bill.
Once your tax preparer has completed your forms, be sure to sit down face-to-face with her and go over everything. This helps ensure that nothing has been missed and your forms are prepared properly with validated information.
Know Your Deductions
Your small business can rack up a lot of helpful deductions. Deductions go against the amount of business taxes you may owe at the end of the year. If you combine your personal and small business taxes, personal deductions, like a child tax credit, may help further.
If you’re not sure what you can deduct, it’s best to ask a business accountant for a list of eligible deductions. It’s best to keep track of everything you spend money on or think may be deductable, instead of trying to figure it out at the end of the year. Most small businesses can deduct a buffet of expenses:
- Internet and phone charges for business use
- Health Insurance premiums
- Travel and meal expenses for business trips
- Fees for business memberships
- Business coaching or mentoring fees
In addition, your expenses are also deductable:
- Office supplies (ink, toner, paper, pens, etc…)
- Fees paid for services, like Paypal fees
- Web hosting fees
- Cost of supplies to make a product
- Some advertising costs
- Post office fees
- Fees for services used to run your business, like a stamps.com membership, etc…
You may also be able to deduct costs directly related to starting your business. The government may allow between $5,000-$10,000 in start-up business deductions.
If you sell a product, you may be required to keep track of inventory you have left over. You’ll need to tally the amount of inventory you started with at the beginning of the tax year and what it is at the end of the year. Inventory is priced at cost, not retail pricing. If you’re unsure if you’ll need an inventory count, be sure to check with a tax preparer for advice.
Know Your Income
Keep track of all modes of income, whether it be from your business, an outside job or spousal income (if you file everything together). If you sell a product, be sure to tally income generated from online sales and sales from craft or vendor shows, any consignment or retail placements or wholesale accounts you may have. Break down your routes of income so you know where each dollar is coming from.
If you’re a sole proprietor, you may file your business taxes along with your personal taxes. If you have a job with an employer in addition to a small business, you’ll need to be even more diligent about keeping good records.
Your accountant will need to know what expenses are directly related to your business, your personal finances and your job with another employer. For instance, if you have a healthcare job in addition to your small business, you may be able to write off uniform expenses related to your employed position. Keeping separate files for each thing that you do will help organize all your information when it comes time to fill out tax forms.
Additionally, if you have more than one business, maintain income and expense reports for each business, even if you share supplies for both. Grouping all expenses together makes it impossible to tell which expense was spent on which business, and your tax preparer will need to know figures for each.
Preparing your small business for tax season shouldn’t be a sprint to the April 17th deadline. Instead, a well-paced run throughout the year will serve you better in the end. Why? Because taking frequent, small steps toward being organized will help you manage all the information you and your accountant need to create a correct return.
Even if you’re sprinting this year, you can still nab some tax organizational tips to whip you quickly into shape. Then you can apply you’re newly found organization to prepare for next year.
- Keep an envelope in your purse: Keep an envelope in your purse or bag and plop business receipts into it the moment you get them. Write the month and year on the outside of the envelope and consider swapping them out each month. Make sure to put your filled envelope with your record keeping supplies so you know where it is when it comes time to sort receipts. Business receipts have been likened to cold hard cash, so treat them with the same respect you give your money.
- Sort receipts and expenses frequently: Sort through all the receipts you’ve collected for the past month and sort them. Break down receipts into categories so you can itemize each expense. This helpful for both your accountant and your bottom line as you’ll be able to see directly where all of your expenses add up. Once you’re done sorting your receipts, save them! Consider scanning them into a folder on your computer, or use a filing system to tuck them away. If this seems like too much of a hassle, check out Outright’s receipt-management partner, Shoeboxed.
- Make an email folder: If you make frequent business purchases online, create an email folder just for purchase confirmation emails. This will make it easier to find and print receipts when you need them. If you make frequent purchases from a specific vendor, he may be able to provide you with a year-end receipt of all your related purchases as well.
- Grab Technology: Using an online accounting system, like Outright.com, can make it so much easier to prepare and file your taxes. A system like this allows you to create printable spreadsheets of your expenses, deductions and income, as well as other records you may need to create for your finances. Then, simply print them out and hand over to your tax professional, or use the completed figures to file your taxes yourself.
Once you’ve reduced your receipts to actual figures on paper, file them away in case you ever need to look back and reference your expenses. If your business were to be audited, you’ll need to be able to prove the expenses, deductions and income you listed on your tax forms. Consider great organization the best thing you can do to prepare for not just this tax year, but the years ahead as well!