Top 10 Crucial Tax Tips For Small Businesses
Are you an owner of a small and growing business or just starting your own business venture? If the answer is “yes”, then we know what stresses you out the most right now. It’s taxes. Most small businesses owners shudder to think of tax time and tend to wait until the last minute to get prepared for it.
Check out these crucial tax tips for your small business to save your precious money, time, energy and - most importantly - your sanity.
DON'T LEAVE TAXES UNTIL THE LAST MINUTE
The most important tax tip for your small business would be to prepare for the tax season well in advance. Implement just a few things into your routine and get ready for the tax time stress-free.
First, you need to come up with a filing system that will keep all the paperwork for your business in one place. All you need is to buy a dozen expandable folders, one for each month, and file all your receipts, deposit slips and ATM withdrawal slips in them. Use a new folder every month.
When you do it, make sure your personal and business paperwork is filed separately. It is also important to have a separate bank and credit card account for your business and for your personal needs.
Make sure you have spare few hours each month to go through the folder of the previous month and match up the receipts with the statements received from banks.
KEEP AND FILE A BUSINESS TAX SPREADSHEET
Use a special spreadsheet that helps track revenue and expenses throughout the year. With the handy folders mentioned in the previous tip, filling up your business expense spreadsheet will not be difficult. As for revenue information, be sure you have that filed and ready as well. Once you've filled out a small business tax spreadsheet, you have all the needed info to easily file your small business tax return.
DEDUCT ALL THE EXPENSES YOU CAN
Any business expenses can be tax deductible if they are - as IRS defines them - ordinary or necessary. An ordinary expense is the one that is common and accepted in your trade or business. A necessary expense is the one that is helpful and appropriate for your particular small or growing business.
For example, a great tax tip for a small business would be to deduct expenses for your home office. If you work from home, mortgage interest, insurance or even utilities could be deductible. Besides, you can deduct car expenses if you use your personal car in your business. To do that you should know the exact percentage of time and miles the car was used for business purposes.
Consider downloading or using an online mileage reimbursement calculator to find the compensation due based on the distance driven and the compensation amount per mile.
Did you know that you can deduct 50% of all business-related meals? It even includes taking a client to lunch or ordering pizza for your employees. Just make sure that these meals are not extra fancy.
Look up the section 179 deduction on the IRS website. This section allows you to recover up to $500,000 of the full cost of equipment or property that you purchased for your business in the same year that you purchased it.
The same deductions could be done if your employee used his own money on business-related expenses and filled in a business expense reimbursement form.
CONTACT AN INDEPENDENT CONTRACTOR
Hiring independent contractors can help you skip paying benefits or payroll taxes. Learn the difference between an employee and an independent contractor beforehand. All contractors need to fill out a W9 form for you to provide them with a 1099 federal tax form at the end of each year.
SET UP A RETIREMENT PLAN
Not only does a retirement plan make your company more attractive for a potential employee but also helps you to save some money on small business tax. The thing is, employer contributions are tax-deductible and assets in the plan grow tax-free.
DONATE
Donations are a great way to cut small business tax. Many small and growing businesses have unsold inventory left and spend lots of money storing it. Instead, you can donate unused supplies and property. They are all considered to be deductible expenses if the donations are greater than $500.
E-FILE YOUR TAX RETURNS
Another great tip is to file your small business tax returns electronically. It is much more effective than using mail and wondering whether it will get to the authorities at all. This way you will be sure your tax returns are received on time. There are a great number of tax software programs that allow you to e-file your state federal tax forms for free.
DO EVERYTHING ON TIME
You want to file your small business tax return on time or you will be assessed penalties for failure to FILE on time and failure to PAY on time. The first is $205 and the second one is calculated based on the amount of tax you owe. It continues to accrue until the tax bill is paid in full.
It is also important to remember that April 15 isn’t the only important small business tax-related date. Estimated taxes are due four times a year: on April 15, June 15, September 15, and January 15, and sales taxes are due quarterly or monthly, depending on the rules in your state. Besides, depending on the size of your payroll, employee taxes are due weekly, monthly or quarterly.
LOOK THROUGH THE IRS SMALL BUSINESS TAX WEB PAGE
On IRS video portal, small and growing business owners can find a section to small business tax. There, you can find interactive video lessons and information dedicated helping new small business owners learn their tax rights and responsibilities under a topic called "Small Business Tax: The Virtual Workshop". In addition, it has a list of small business resources with links to other useful government sites for small and growing businesses.
CONTACT A PROFESSIONAL
If all of these tax tips just weren’t enough consider hiring a tax professional. They are usually more affordable than you think, not to mention that an experienced enrolled agent can save you at least as much as his fee.