Running a small business is like herding cats, spinning gears and juggling chainsaws, all at once. It’s easy to let tax season sneak up on you as a small business owner, and that could be a detriment to your bottom line. Thankfully, we’ve assembled 24 experts: small business owners, tax professionals and money managers. Here are their top tax tips for small business owners.
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Be careful not to underestimate how much time it will take to gather and organize tax records for your return. Many business owners find themselves in a time crunch come early April, because they don’t allow enough time.
Whether you use a tax preparer, or do your own taxes, the first step is always to pull together your records – Including all income and expenses. This can be surprisingly complex, and if you are like the majority of business owners, you are filing your business and personal taxes at the same time (using a Schedule C). This doubles the workload. Start early enough so you don’t miss deductions or incur a costly penalty.
More than 9 in 10 (93%) small businesses are very or somewhat confident in their ability to accurately file taxes – but then almost one-third (30%) believe they are overpaying their taxes.
This data shows that small businesses should not overestimate their skill level when it comes to paying taxes. Though it can be hard to admit a lack of knowledge, it’s always better to seek outside expertise and avoid mistakes before they even happen – than pay for it (literally) later.
I am all for the DIY approach for when it makes sense, but I do think small businesses really benefit from using a CPA. You have to make sure you are properly separating your business from your personal expenses, that you are correctly classifying your business, and that you are taking advantage of the tax law where you can.
Again, unless you are an expert, all of that is hard. So, yes, I’m a believer that finding the right accountant for a small business is a game changer. If you don’t have one, now is the right time to ask around and get recommendations. Another win? You will probably even be supporting another small business in the process.
We’ve all heard the truism that nothing is certain in life but death and taxes. While taxes are a virtual certainty if you are running a profitable business, there’s no honor in paying more taxes than you are required to.
This tax season make sure you take advantage of deductions you may not have thought of before. If you work from home, looking into what you can deduct for having a home office is a great place to start. Another often overlooked strategy is to make sure your business is in an appropriate corporate form. A sole proprietor LLC, as an example, has the benefits of limited liability while at the same time being a pass-through entity. This means that you avoid dreaded double taxation on your income, a big bonus for small-business owners.
Organization is the key to a low-stress tax filing season. Reconcile your books in January for the previous year. Get your documents lined up and ready to go no later than early March. This would include your P&L, your trial balance, mileage logs for any employees or owners that travel, payroll records etc.
Sit down and review them before sending them on to your CPA and look for anything that is questionable that needs documentation so you can provide that.
As a small business owner, it’s important to keep a couple of big things in mind. First, don’t forget to add all your deductions for the year. These deductions can range from your home office, cell phone, internet, utilities, etc. All your deductions can add up quickly and help save you money when filing your taxes.
The second thing to keep in mind is your business structure. As your business continues to grow, it’s important to double-check with your CPA on the best structure of your business. Moving from an LLC to an S-Corp, for example, could save you tens of thousands of dollars in taxes. Work closely with your tax professional and be involved with your business finances.
Find an advisor you believe in, educate yourself and double down on communication! In the past, my mindset was this was a once-a-year hassle I had to get through so I could get back to business.
After many years of struggle, I changed my mindset, got educated and now I talk or send an email at least 5 to 6 times per year with my advisor, to proactively plan and maximize everything that’s available to me as a small business owner. No one cares about your money as much as you do.
Deductions are key when it comes to tax season for small business owners, but that doesn’t mean you should try and take every deduction under the sun. There are plenty of deductions that your small business could be eligible for, like the 20% qualified business income deduction for pass-through entities, or the home office deduction.
Look into all the options available and claim the deductions you know you can support with detailed records. If you didn’t record the expenses you’re trying to deduct, think twice about writing them off. Without proof of those expenses, you won’t be able to support your claim to the deduction if the IRS decides to audit your small business.
Small business owners, especially new entrepreneurs, need to be aware of business tax deadlines. Unlike with personal taxes, you can’t wait around until April and finish your taxes in one sitting. There are many different business tax deadlines you have to meet throughout the year, and so much of it depends on your business structure.
LLCs, for example, can elect to be taxed as a partnership or a corporation, each of which have different tax forms and deadlines. Plan ahead and hire a good accountant. Those two steps will save you both a headache and potentially a lot of money.
There many ways a business owner can reduce their tax bill if they understand how their business entity is taxed, and that is because not all business entities are taxed the same way.
For example, if a business owner’s business entity is being taxed as an S Corporation, the salary that’s paid to its shareholders is going to be under IRS scrutiny if it’s too low. The S Corporation’s qualified business income is eligible for a 20% tax deduction, which can reduce the shareholder’s personal income taxes. Understanding how to balance these two opposing and very important factors before the tax year ends is necessary if the business owner wants to reduce their overall tax bill.
With the last tax year behind us, the opportunity for implementing tax minimization strategies is limited, but there are still some important points to consider leading up to the 2019 tax filing deadline.
- Get tax records ready and organized. Every revenue and expense transaction should be recorded in a ledger. Then, make sure every transaction has supporting documentation. For income items, this will include things like invoices and bank deposit slips. For expenses, your supporting documentation will be receipts, credit card statements, bank statements and invoices.
- For certain tax entities like sole proprietors and LLCs, it’s not too late to fund personal IRA and HSA accounts. 2019 tax year contributions can be made right up until the tax filing deadline. In most circumstances, funding IRAs and HSAs can provide significant tax savings.
- Finally, decide whether to employ a paid tax preparer or do the tax return yourself. There is no right or wrong answer here. Working with a tax professional can save time and reduce the chance for error. On the other hand, there is always something to be learned and money to be saved by preparing the tax returns yourself.
Make sure your financial records are accurate and you have a good accountant that will be able to maximize your deductions.
Instead of looking at the annual chore of filing a tax return as a burden, view it as an opportunity to learn where you can make improvements in your business and save money. Review your deductible expenses reported on your return from a financial perspective to see where you can trim costs. Discuss with your tax adviser what tax-saving opportunities you missed by failing to take action, so you won’t make the same mistake this year.
If you don’t have a qualified retirement plan for business, you can set up a SEP and make tax-deductible contributions to it for 2019 until the due date of your 2019 return (including an extension if you obtain one). And, because various tax provisions that expired at the end of 2017 have been extended retroactively, be sure to check whether any applied to you in 2018 so you can file an amended return for that year and claim a tax refund.
Tax season is an important time for small business owners. It’s also a great opportunity to review your prior year business performance to see what worked well, what didn’t, and make any needed changes to grow in the year ahead. When doing your taxes, it’s important to look for ways to save on your taxes and save on how you do your taxes. I used to pay a professional to do both my personal and business taxes, but now pay about 75% less doing them myself online. Not only do I save money, I also found I get better results on my own, as no one knows my money better than I do.
No matter how you do your taxes, make sure to go through your records or receipts so you can deduct costs related to your business. Nearly any expense that’s directly related to your business is eligible for at least some level of deduction. It pays to spend the time finding those expenses to get the lowest possible tax bill.
A small business is missing many opportunities if it is just now thinking of taxes as we approach the 2019 filing deadline. They should have been managing their tax liability from January 1st of 2019 by tracking their expenses, tax exemptions and their income. In this way, they can eliminate any surprises this April 15th, 2020, when they file.
I’m guessing at least a few people reading this still track their tax deductions via a shoe box filled with receipts. This must make filing your taxes a nightmare. Not to mention is greatly increases your chances of overpaying Uncle Sam. Take a little time and set up QuickBooks or hire a bookkeeper; it will save you time and money in the long run. If nothing else, the bookkeeping software can save you from having to do unnecessary math.
Once you’ve attached your credit cards and bank accounts to the software, all your transactions will download into it. You will still need to do a little legwork to categorize your income and spending properly, but it sure beats hours organizing a shoe box full or receipts, or worse paying more in taxes than is necessary for your business.
While we like to keep the work in the family, sometimes you need a professional to help you go through your documents at this crucial time. The American tax laws are complex, and one mistake can be a real problem.
Hiring a small-business tax professional can make sure your documents are perfect, and save you worrying about it. I don’t like passing work outside of the team, but ultimately something like this needs to be done right, and I couldn’t trust myself with it as our business grew.
There’s no shame in needing help, especially when it comes to the law.
My number one money goal for 2020 is to improve my automated savings and investments throughout the year instead of waiting for December. You can save up to $6,000 ($7,000 if you’re 50 or older) in an IRA or Roth IRA in 2020. I also use an HSA, which takes up to $7,100 for my family ($3,550 if you’re single). That’s $115 per week for each IRA and $136 per week for my HSA. Challenge accepted!
The average household in the US doesn’t have enough savings and doesn’t invest enough for retirement. I’m working hard to avoid being a part of that statistic. Getting out of debt and saving more is a great goal for 2020 and beyond.
Small business owners have a lot of financial decisions to make around tax time. Depending on the type of year they had (profit wise), they could be faced with a larger than expected tax bill. One way to lower your tax bill is by diverting some earnings into an Individual Retirement Account (IRA), or by offering an employee retirement plan to help retain and attract new employees.
A few options are a SEP IRA (Simplified Employee Pension), Solo 401(k) (for single owners and a spouse), SIMPLE IRA (similar to the well known 401(k) plan), and the traditional 401(k) (typically for larger employers). There are specific nuances to each plan that provide different benefits and flexibility; however, they all give the small-business owner the ability to reduce their taxable income by contributing to a retirement plan.
As tax season approaches, small businesses should keep deductions at the forefront of their minds. Every penny counts when you’re running your own business. Be sure to take advantage of every opportunity to save where you can.
There are over 20 qualified expenses that can be deducted to help reduce your business’ tax liability. This includes travel expenses, supplies, and even marketing costs. Consult with your tax professional to find out which applies to your business and how you can take advantage of them.
As a blogger/content creator who has monetized her influence, there was a learning curve when it came to filing taxes. If you’re a freelancer who is just starting out, I have a couple tips that can really help for when tax season rolls around.
The first tip is that you need to make sure to keep track of all your expenses. As a blogger/influencer, you can write off more than you might think. Any camera expenses, gas mileage for blogging trips or shooting photos, props for any pictures you take, etc. can all be written off.
The second important item to track is, of course, your income. At the end of each year, brands you’ve worked with will send you 1099 tax forms, and you want to make sure you have all of them when filing. I also keep track of expenses and income in a separate Excel document, which is something I highly suggest doing every year.
File early. The temptation is to leave filing to the last minute, if you can file early then you get your refund now, and if you do have any tax to pay, you know early and can budget rather than face the shock at the last minute.
Tax season can be extremely overwhelming. I know as a new business owner it was for me. Keeping track of your money flow throughout the year helped with my tax preparation, and my CPA truly appreciated it. My recommendation is to take one day out of the month and reconcile your business budget. Write down invoices, payments, expenses – all in a Google Sheet or Excel template.
Even if you have a program like Quickbooks, I like to make sure I also write these things down myself. That way, just like my personal budget, I know where every dollar came from and where every dollar went. When tax season hits, you’ll feel much more secure and ready to tackle it head on.
Tax season is here, and it’s getting closer and closer to the filing deadline, April 15. As a small business owner, just the thought of filing taxes can be stressful. It’s common to see that small business owners aren’t taking advantage of all of the deductions available to them. Since deductions and tax laws frequently change, it’s clear to see where the confusion lies. Still, technology has made it easier than ever to keep track of your expenses throughout the year and make sure you don’t miss a deduction that your business qualifies for.
How Technology Can Help
Using tax filing software can help your small business stay organized, year-after-year. Most software options retain your personal, business, and tax information from previous years- so there’s no need to waste valuable time searching for earlier records. Additionally, most tax filing software on the market have accuracy and maximum refund guarantees, including TaxAct, TurboTax, H&R Block, and Jackson Hewitt. Using software that offers guarantees can give you peace of mind if your business faces an audit or if you find a discrepancy.
Don’t Leave Deductions on the Table
Tax deductions are a great way to minimize the amount that you owe when you file your business’ taxes- so make sure that you keep all expense records throughout the year. It’s easy to keep track of your receipts with a free app, such as Wave Receipts or Adobe Scan, so you stay organized and don’t miss any available deductions. Keep in mind that you may also be able to deduct certain work-related car expenses when you file, as well as home-office expenses if you run your business from your house.