New business owners often face a number of challenges when launching a business. One of these challenges is properly preparing for tax implications they may face and having a good understanding of their financials.
Understanding basic tax laws and deductions and how they apply to your business can save you a significant amount of money over time. It can also help you plan properly and stay
organized so filing isn’t a nightmare.
Here are ten tax tips every business owner should think about:
1. Talk to your tax professional and business attorney before deciding on your business structure. Sole proprietorship and partnership are usually the best way to go for startup businesses with inexperienced owners.
2. Research the business taxes that apply to your business. Make sure you understand them fully. Failure to know and understand applicable taxes could result in significant costs.
3. Get an Employer Identification Number (EIN). Your employees will need it. Even if you are the only employee, it is a good idea to get one instead of using your Social Security number.
4. Set your accounting method. There are hybrids, but you generally need to choose the cash or accrual method. Accounting periods follow the calendar year, but if you are incorporated
you can choose a fiscal year. Discuss your options with a tax professional.
5. Research tax credits. If you have less than 25 full time employees, the Health Care Tax Credit can help you pay for your employees’ health care coverage. Go over the rules with your tax professional to get a full understanding of how they apply to your business.
6. Owning a business affects your tax return. If you make a profit, you may have to make estimated tax payments. Find out if you need to pay, how much, and when from The IRS Small Business Tax Center.
7. Research Tax Deductions. It’s important to understand what expenses you’re eligible to deduct. The more tax deductions your business can take, the lower your taxable profit will be. Some major ones include auto expenses, business startup costs, legal and professional fee’s and even bad debts.
8. Use accounting software to keep track of your finances. This will help you to produce financial statement, reconcile accounts, budget, and make projections. It may be necessary to hire a bookkeeper to take care of this for you. There are a number of easy online choices these days for small-businesses. Some good options include Freshbooks, Zoho or QuickBooks.
9. Assign a place for records of cash paid expenses. Keep all receipts for items paid for in cash in that place, and post them on a quarterly basis.
10. Keep a file of tax records, and start a new one every year in January. Any time you make a transaction with tax implications, add the record of that transaction to this file. You will need more than a receipt to prove the purpose of the expenditure.