Best Practices for Your Small Business Taxes

Given all the troubles you have to go through to start your business and keep it running, the last thing you want to worry about is paying your taxes. Fortunately, there is a lot you can do to ensure you don’t overlook anything when it comes to filing your small business taxes. With the right attitude and resources, it is possible to feel at ease throughout the process. Here are four best practices to consider when preparing your business taxes.  

1. Research tax credits 

Tax credits are the closest thing to free money you’ll find. They are one of the most effective methods to reduce your business tax bill since they give dollar-for-dollar savings in your tax liability. For instance, you may be eligible for a tax credit if you provide your employees with subsidized health insurance or a retirement plan. Some business owners can also use personal tax credits, such as the child tax credit, to minimize their business income tax burden.

2. Hire the right accountant 

Your accounting team isn’t doing enough if they only prepare your financial statements. They should offer more and do your taxes. Work with your accountant throughout the year to analyze your income and expenditures, identify any cash flow problems, and keep an eye on your gross and net earnings. You might want to consult an accounting professional if you are unsure about items to claim as business expenditures, what to do if you have a dormant company or even how to interpret some local tax guidelines. Whilst having an accountant for your business is a good choice, you also need to be aware of what is happening with your finances as well, don’t just leave them entirely to the accountant. You may want to look into accounting software for startups, for example, and integrate that into your system to keep track of everything in one place.

3. Consider changing your business structure

Contrary to what many people think, there is more to accounting than simply counting money. For instance, tax liability differs across various business types, and an accounting firm can advise you on the best business structure. There are various structures, including sole proprietorship, partnership, limited liability companies, etc. Choosing the right one can result in significant tax savings. 

4. Capture all business expenses 

Keeping detailed and precise records throughout the year can ensure the accuracy of your tax return. Experts say you risk missing out on tax deductions when you fail to keep proper records. You are simply throwing money away if you fail to track your expenses. Capturing all your business expenses can also help to maximize your deduction and minimize your tax burden. For instance, if you record $50,000 in earnings and $35,000 in deductions, you’ll have $15,000 as taxable income. Your tax liability is calculated by multiplying the current tax rate by the tax income. 

5. Separate personal from business

It is advisable for small business entrepreneurs to properly separate their personal and business spending. Making the distinction between the two will make it much simpler to claim deductions on your tax return and substantiate those claims should there be an audit. You can do a few things to separate your personal and business expenses, including having dedicated accounts for your personal and business accounts and paying yourself a salary each month from your business account. Keeping separate receipts for your personal and business expenses is also recommended.