11 Small Business Tax Tips You Need to Know
Finance

11 Small Business Tax Tips You Need to Know

About 72% of small business owners think that the current tax code tilts towards the interests of large companies, rather than small businesses.

The tax code does put a lot of obstacles in front of small business owners. Increased compliance costs, administration costs, and the confusing tax code make it hard to keep up with small business taxes.

You have a limited number of resources, but you can make sure you’re not paying taxes than you should. You need small business tax tips to take the deductions you’re entitled to and make sure your taxes are accurate.

This guide has you covered. Keep reading for the top ways that help you pay less in taxes.

  1. Classify Employees Correctly

Does your small business have employees or contractors? Tax authorities are cracking down on companies that misclassify employees.

Companies want to have people work for them, but they don’t want to pay payroll taxes, benefits, and insurance. This is lost revenue for governments and workers might miss out on important labor protections.

Before you place an ad for an employee or contractor, make sure you classify them correctly. Use the IRS guidelines to classify workers if you’re not sure.

  1. Choose the Right Business Structure

When you registered your business, you had to choose a business structure, such as LLC, sole-proprietor, corporation, or partnership.

The business structure has an impact on your taxes. Talk to a tax professional to see if you should consider changing your business structure.

  1. Hire a Good CPA

A CPA works with small business owners to identify deductions and save money on taxes. They prepare and file tax returns.

A good accountant is patient and ensures all of your questions get answered. They also help you plan for the following year’s taxes.

If you want to save money, you could DIY. You’d miss out on deductions and opportunities to save money on taxes. There are services such as Taxfyle that do tax filing for you at an affordable rate.

  1. Keep Clean Records

Small businesses have to maintain clean and organized records. You never know when state or federal tax agencies have a question about your tax returns.

You have to keep records of invoices, receipts, canceled checks, credit card and bank statements, deposit information, and cash register records.

Keep these records between three and seven years. If you have electronic records, be sure to make backup copies of everything.

  1. Maintain Separate Accounts

The easiest way to make an error on your taxes is to deduct expenses that are really personal expenses. This happens more often than you think because small business owners don’t separate personal and business expenses.

It’s best to separate your business and personal expenses by having separate bank accounts.

  1. Deduct Vehicle Usage

Do you use your personal vehicle for business purposes? Don’t forget to write off the mileage for those expenses. You can claim $.56 for every mile.

Be sure to keep a record of the business miles that you travel for meetings and events. You can do this by writing them down in a mileage log or using a mileage app.

  1. Create a Retirement Account

You’re probably not thinking about retirement, but you are missing out on tax benefits if you don’t make retirement contributions.

Open up a 401(k) or IRA and you may be able to deduct some of your contributions to your retirement plan.

  1. Deduct Home Office Expenses

The home office deduction is one of the confusing deductions for small business owners. You can deduct expenses as long as you use a section of your home only for business purposes.

It can be a section of your garage or a spare bedroom. The IRS made it easier to calculate the home office deduction. You can take a flat $5 per square foot of space, up to 300 square feet.

The standard way is to calculate the percentage of the home you use for your business. You then deduct that percentage of your utilities, rent, and insurance costs.

  1. Plan for Taxes

One mistake that business owners make is that they don’t plan for taxes. They wait until March to gather paperwork and file taxes.

Tax planning is important because you can strategically make purchases that lower your tax bill or wait until the following year.

Look at your profit and loss statements each month and make sure you’re paying enough money in estimated taxes.

  1. Claim All Income

It’s your responsibility to report all income to the IRS. Even if you don’t get a 1099 from a client, you still have to report the income.

There are things that the IRS counts as income that you might not know about. An example is a forgiven debt settlement. If a creditor agrees to settle a debt for more than $600, they have to report that to the IRS.

You’ll receive Form 1099-C and have to report that as income to the IRS.

  1. Know Tax Deadlines

This seems pretty simple, but it can get lost when you’re running a business. Make sure that you have calendar reminders to send your estimated tax payments, payroll taxes, and file your business taxes on time.

You don’t want to get stuck owing more money because you didn’t pay on time.

These Small Business Tax Tips Make Filing Taxes Easier

It’s a challenge to manage small business taxes. You want to make sure you do everything correctly, but it’s difficult to understand the tax code.

These small business tax tips give you a few ways to stay on top of taxes and take advantage of small business tax deductions. If saving on taxes is important to you, you’ll follow them.

Head over to the home page of this site for more business and financial tips today!

 

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