If you are a small business owner, you are probably always looking for ways to optimize your finances. Small businesses generally spend quite a lot of time doing taxes and keeping their business registrations up to date. However, this may not be enough. You need to set up your company at the end of the year to make tax season easier. You may also want to consider other things to help save money throughout the year and during tax season. Here are some steps on how to prepare taxes for small business.
Contain Your Taxes Within Your Business Expenses
Business owners have an incentive to keep labor costs down by hiring family members or paying workers at the table. When thinking about how to prepare taxes for small business, it is smart and legal to hire the family member or worker paid under the table because they cannot claim any deductions because no taxes were withheld.
Set Aside Tax Refunds for Future Business Expenses
When you think about how to prepare taxes for small business, you should set aside a certain amount for every pay period to be used solely for taxes. Only take out enough to cover the tax cost and leave the rest in the account until next year. If you do not need it, roll it over into your savings and use that money instead of your income. This will help decrease your taxable income and increase refund by keeping more of the money you make within your business accounts.
Hire a Tax Expert
Small business owners can sometimes be intimidated by hiring an external tax expert. However, hire a professional who knows what they are doing and has experience with small businesses. They may be able to help you save money or even get more back than you expected. Also, you can get legal advice on how to prepare taxes for small business to make sure that your tax preparer is registered and bonded and that they have sufficient expertise.
Know What Deductions You Are Allowed
With the knowledge of how to prepare taxes for small business, you can know what kinds of deductions are allowed in your industry and the expenses to write off. For example, as a restaurant owner, almost all of your expenses related to running the restaurant would likely be deductible as necessary for operations, for example, food, drink, rent, utilities. If you are unsure, consult a professional to determine which deductions you may be entitled to.
Use an LLC or S Corporation
If your business is owned by one person and does not have any employees, it would be taxed as a sole proprietorship under the tax code. All of the firm’s income would flow through directly to its owner’s tax return and then be taxed at their rate. However, how to prepare taxes for small business with just a few employees is by considering organizing as an LLC (limited liability company) or an S corporation to make payroll processing easier and cut down on paperwork. It will also likely lower overall taxes due to how taxation works with these entities.
Hold Your Money Elsewhere
If you have money in a bank account for your business, do not just hold it at one location! Instead, with an understanding of how to prepare taxes for small business, you could consider using a bank with no branches so that you can avoid having to pay additional fees. Also, do not use the ATM attached to the local convenience store as those fees can add up quickly. Pay some of those bills with money from another account. Perhaps even off-shore if possible. If necessary, hire someone who knows what they are doing to help you increase returns on your money and reduce taxes related to holding this cash.
Be Careful With Your Accounts Receivable Balance
The Accounts Receivable balance is the total of all outstanding invoices for goods or services already delivered to your customers but not yet paid. You should be careful about what this number is at any given time because if it is too high, you may lose track of some money, and nobody wants that. How to prepare taxes for small business is by holding onto invoices until payments are received.
Know How Much Capital Gains Tax You Will Have to Pay and When to Pay It
If you want to avoid paying capital gains tax on a stock sale, there are certain guidelines you have to follow. If these guidelines are not followed, the contract will be taxed as a short-term gain which can take a bite out of your returns. Best tax attorneys show you how to prepare taxes for small business and avoid paying taxes in this case. You have to hold the stock for at least a year and one day. If you fail to meet this requirement, the contract will be taxed as a long-term gain.
Find Out if You Need More Insurance Coverage
Suppose your business is growing in size or value. In that case, business law attorneys help show how to prepare taxes for small business by considering taking out more insurance coverage to protect yourself against unforeseen circumstances. This might include additional liability insurance, solar power tax credits audits, employee benefits, equipment coverage, etc. Sometimes, small businesses can save money by obtaining higher levels of insurance than they originally thought.
Organize Your Receipts and Records
To properly organize your records, you will need to purchase a tax-form organizer that you can easily store on a shelf. When it comes time for filing purposes during tax season, you will have to dig through your business paperwork to find important information. Keep in mind that some past transactions may require additional documentation, making it harder for you to file if not kept with the rest of your receipts and forms.
Organize Your Receipts and Records
If your business involves a lot of traveling and asset management services, it might benefit you to use an app that allows you to take pictures of receipts and expense reports. This will help save time by eliminating the need to fill out paper forms while also making tax season less stressful.
Staying Organized With Financial Software
Many small business owners find it helpful to keep their records organized using the software. How to prepare taxes for small business is by having specifically designed programs for this purpose, so it might be wise to take your time and choose the right one for your needs. OpenOffice is free but limited in capability, while Microsoft Office runs for a few dollars. Mac users can check out Numbers, which is free as well.
Make Your Xero Invoices More Eye-Catching
One of the reasons people fail to pay invoices on time is because they lack excitement. If you want to make sure that does not happen with clients, then try utilizing professional templates that will help them see how much effort went into making your product or service available for them to purchase.
Accepting Payments Online
Accepting payments online is a smart way to ensure you do not lose track of income or get your clients’ payment information mixed up with another client’s. Your internet provider offers numerous options, but PayPal seems the most popular choice. This site offers small businesses various features that will help you save time and money while also increasing your reach throughout the internet for businesses on their homepage. PayPal allows users to accept all major credit cards and other modes of payment through their service, which means you can potentially sell anything.
Beware of Service-Based Businesses With High Overhead Costs
If you own a service-based business, then you should be aware that these types of businesses usually have high overhead costs that can outweigh the actual revenue coming in. This means that if your business is not profitable already, then it may be wise to find a way to decrease expenses while increasing revenue because continuing with what you are currently doing is not going to cut it.
Not Enough Tax Deductions, Hire a Bookkeeper
Tax deductions are an important aspect of running their business properly for many small business owners because they will help lower the amount of money owed after taxes are filed for this year. If you notice that you are not getting enough deductions, then hiring a bookkeeper could be an answer for you. These individuals understand how various aspects of the tax code work and know what deductions are available to your business.
Make a Business Budget
This is another thing that most small businesses fail to do, but it is a pretty smart practice if you want to increase the chances of your business becoming profitable in the long run. It does not have to be particularly in-depth, but just enough so that you are aware of how much money is coming in versus how much is going out. You should make one before tax season simply because seeing your projected earnings will help reduce stress throughout this time because you will not feel like you need to rush everything through.
Make a Marketing Plan
Although not every small business owner feels comfortable with this idea, creating a yearly marketing plan is a great way to take the guesswork out of your business and help you identify areas you can improve without having to experience them first-hand.
Cash Basis or Accrual Basis Accounting Method
Taxes are often calculated differently depending on whether you use the cash basis method or the accrual basis method. Both methods are accurate, but small businesses usually do better with one over the other. The best way to decide between these two is to consider how many accounting transactions occur each month. If later on. One example involves charitable contributions. You can make donations throughout the year, not just at the end of the calendar year in December. Another way is to delay purchasing equipment until after Dec 31your company uses the cash basis method.
Save Tax Deductions While Maximizing Your Income
You can do several things that should save money for taxes during the year. For example, a healthcare business might be able to take advantage of several tax deductions that you did not know about before. This involves saving money by hiring a new employee or reducing the number of people on your payroll. Some examples include medical insurance premiums for part-time employees, health care savings account deduction something else.
Check Your Itemized Deductions
Itemizing business expenses are generally more beneficial than taking a standard deduction. However, in some cases, neither will save you any taxes, so it is up to you to decide what would be most beneficial. Many things fall under itemized deductions, including but not limited to charitable donations, business travel and entertainment costs, professional dues and subscriptions, equipment rental expenses, home office use entrepreneur expenses, travel expenses, home office use other deductions.
Hire a Tax Professional to Save Money
If you want to keep more of your money in your pocket, hire a tax professional. However, while this will help save your business some extra cash, you should still try and do the basic things on your own, like how to choose an office. Doing most tasks yourself can avoid hiring a three-times more expensive accountant. It also helps avoid misconceptions about what an accountant or tax professional does for tax season. These professionals are experienced with filing taxes through either the accrual method or cash method.
Do Your Taxes
Unless you have millions of dollars in income, it is usually best to do your taxes. This should be the most important message if you take anything away from this article because filing taxes yourself will save you money and time. When doing taxes by yourself, take advantage of technology like the point of sale systems which makes things easier.
In conclusion, there are several ways to get your small business ready for tax season. Whether you hire a professional to do your taxes or file them by yourself, you must keep good records throughout the year. When tax season comes around, you will be less likely to make any errors with filing them out.
