While about 40% of individuals do their taxes on their own, things get a little more complicated for small business owners. Even if you’re the only employee of your business, tax preparation is a complicated business and requires some guidance. If you’re struggling to get it done well and on time, you should follow a few simple tips to ensure it’s done right.
Here are five steps to ensure that tax prep goes smoothly for you this year and in the future.
1. Separate Business and Personal
One of the biggest mistakes that small business owners make when they’re starting their business is not separating money between personal and business. They will pull out their business credit card for large purchases like computer and furniture but forget it for other things. Those little office supplies and small pieces of equipment can add up fast and get lost in the shuffle of all of your other funds.
Some small business owners forget to start a business bank account for quite a while. Estimates show that 2/3 of the 30 million small businesses in the U.S. have no employees at all, which means many are run out of pocket. If you’re running a small business from your home, you might make some simple mistakes when dealing with money.
At the end of the year, you could end up paying a lot in taxes for both personal and business income, but if you can’t prove your spending, you can’t write it off. The inability to write off your spending means that your business could struggle with the initial startup costs of getting off the ground.
Write-offs and exceptions are the keys to saving money as a business owner and if you don’t take advantage of them, you’re going to be losing money.
2. Balance Your Sheets
You should balance your sheets more often than just at the end of the year, but you definitely need to balance them by December 31st.
If you haven’t paid off all of your bills, you need to take care of them. Not paying your bills could make it look like you’re sitting on a lot more money than you truly are. When it comes to file your taxes, you could end up paying taxes on money that you don’t actually have, you just haven’t paid what you owe yet.
You also need to send out invoices in time for other companies to pay you back. Starting off the year in a deficit will make it harder for you to find investors or get loans if you need them. When someone requests your financial information or wants to see your tax forms, they’ll see that you lost money rather than that you made it and were paid.
Balancing all of your invoices will give you a more accurate view of your financial future.
3. Note Any Supplies and Equipment Purchased
If you spend money throughout the year, make it known on your tax forms. If this money goes to support your business, you need to ensure that you save receipts and add it up at the end of the year. It could lower your tax burden to claim all of the tech and tools you’ve purchases for your company.
Every year, companies need to update things around the office. Whether it’s old manufacturing equipment, ancient printers, or outdated networking tools, the costs will add up fast. If you haven’t taken the time to save receipts and mark them off as expenditures, you could give the IRS the wrong idea.
When you buy supplies that help your staff to be more productive, you shouldn’t be punished for that. The government wants small businesses to thrive and so that’s what you’re allowed to write things off in the first place.
4. Look For Tax Credits
When it comes time to do the work of filling out your tax forms, scrutinize them carefully. There are lots of great opportunities for small businesses to get ahead with tax credits offered.
If your business works in the manufacturing sector, you could be eligible for certain tax credits. If your company uses green energy to produce your products and services, you might be eligible for another tax credit. Just installing a few solar panels to help lessen your carbon impact will make a difference on your tax burden.
For small businesses that get government contracts or help to provide social services, there are credits to help keep you afloat.
If your business provides pensions, insurance, and retirement accounts to your team members, there are tax credits you could get. Just opening your business in an area that needs more business development could enable you to get some tax credits.
5. Improve For Next Year
If you have a difficult time getting your tax information together this year, consider how you can improve things for next year. While it might seem like it’s far off, planning ahead and making changes now could bring in results that might take a year to see anyhow.
Consider a payroll system for your employees that is connected to your bookkeeping system. When you connect the two, you can make quicker calculations, which will eliminate unnecessary data entry.
If you are struggling with keeping track of invoices, consider a new system for writing and recording them. Perhaps you should number all of your invoices so that you can keep track of them. Rather than wondering if you have everything, your only fear is that you don’t have the last one you drafted.
Tax Preparation is A Struggle for Everyone
If you’re pulling your hair out trying to manage tax preparation, you’re not alone. Plenty of clever business people struggle to get their taxes done the right way and on time. The work is grueling and unrewarding but can help you save money when it’s done correctly.
If you want someone to take a second look at your tax returns, contact us so we can help.
