If you’re a new small business owner (or even if this isn’t your first time around the block), taxes can be a bit overwhelming. It’s a totally different world from managing your taxes while working under an employer.
It’s okay to need some help. Everyone was new once.
Small business tax filing can be confusing. Whether you’re your only employee or you’re managing a small team, you’re now in charge of all parts of withholdings.
Dealing with the IRS is serious, so it’s best to get things right. Read on for some tips to help manage your taxes for your small business.
1. Keep and Collect Your Records
It’s really important to be keeping records throughout the year when you’re dealing with a small business. Your records should include your earnings and expenses, but also things like receipts for products and services related to your business.
Your margins are likely pretty thin, and you don’t want to leave any deductions behind. You also don’t want to be audited. It’s best to have some kind of simple accounting software to help keep track of things. It might seem unnecessary at the time, but it’s better to be safe than sorry.
Basic versions of accounting software are very affordable, and can be the difference between getting an audit and getting a lot of deductions. It’s worth the cost.
2. Claim All Reported Income
This one might seem obvious, but it needs to be said.
There’s no fooling the IRS. They will have access to the amount of taxable income that you’ve earned.
As a small business owner, you can not afford fines or audits. Be careful to report everything so that you don’t get flagged.
3. Separate Personal and Business Expenses
On the off chance that you do get audited (for failure to report or record properly), it’s best that you have these accounts separated.
The IRS can mistakenly look into your personal expenses regardless of whether or not you actually reported your business expenses correctly.
While it might seem like a hassle, having a separate account and card for your business can save you a headache in the long run.
4. Use the Right Tax Forms
This might be confusing if you’re a first-timer.
Many people who run their own small businesses file with a Schedule C form, or form 1040. This is if they’re under a sole proprietorship or if you’re the sole owner of an LLC.
If you instead use a corporation or run your LLC as a corporation, you’ll have to fill out form 1120.
If you’re not sure which one of these is right for you, it can be useful (if not essential) to contact a professional beforehand.
5. Make Sure You Know Your Deadlines
While most people are going to end up filing on April 15th, as they always have, there are some small business owners that will work with a different schedule. Small business tax filing can sometimes work differently.
If you’re taxed as an S-Corp, you need to file by March 15th instead, a whole month earlier. This can throw off any plans and calendars, so be sure to make note of it if it applies to you.
6. Classify Your Small Business Correctly
Are all of these options overwhelming?
The way that you classify your small business impacts the way that taxes are done later. There are several different options with their own benefits and downfalls.
A sole proprietorship means that you’re in complete control of your business. That said, your personal and business expenses generally mesh together, and you are personally liable for business debts and expenses.
Limited liability companies, or LLCs, consider their members self-employed. This means that they have to pay self-employment taxes. They leave personal accounts less liable for business debts and expenses, and they’re (generally) protected from lawsuits and bankruptcy.
A corporation is legally distant from the owners, but also expensive to start. They pay income tax on profits, and corporate profits can be taxed twice. There are different kinds of corporations with different qualities, including (but not limited to) c-corps, s-corps, and b-corps.
It’s best to do your research and decide which of these best fits your business before it’s time to turn in tax forms.
7. Hire a Professional
Taxes are relatively easy when you’re working under an employer. When you’re running your own business it’s a whole new world, and you probably need some help.
Mistakes regarding taxes can be costly. They’re significantly more expensive than hiring an accountant, even if the upfront cost seems undesirable to someone who has done their own taxes forever.
Working with a professional will help put you at ease and let you know that you have an extra barrier around your business. It might be your first time doing this, but your accountant has probably seen it all before.
While accounting software can get you part of the way and is great for managing records and keeping track of expenses, when it comes to actually filing taxes correctly, it’s no replacement for a real person who can walk through the process with you.
Putting your trust in a professional is money well-spent.
Small Business Tax Filing Doesn’t Have to Be Scary
It’s overwhelming. There’s a lot to keep track of, and there are a lot of decisions to be made. Luckily, you don’t have to do it alone, especially not the first time. The first time is the hardest.
Don’t be afraid to reach out to a professional accountant for help. They can help you avoid an audit, get the most out of your deductions, and breeze through the entire tax process. Consider them a cost of doing business.
For more information, or for tax help for your small business tax filing, contact us. We’re here to help you.
