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Paying taxes is part of making money. As a result, it is vital to understand the tax implications of entrepreneurship, including the taxes you need to pay, the timing of payment and how to maximize business deductions.
This information is will help you not only file your business taxes on time to avoid late fees, but that you file your taxes correctly to avoid issues with the IRS.
Below are some useful tips for business owners.
Keep original records
Good record keeping allows you to stay on top of your income and expenses. It also helps you avoid any problems associated with a possible audit and prevents you from having to scramble to gather all your tax documents at the last minute.
The best way to ensure good tax records, is to have good accounting software. You may want to outsource the preparation of your final tax return to a tax professional, such as an accountant. Your final tax return is a product of your record-keeping so, choose software that can deliver the best results.
Implement a record keeping system from day one and don’t shift from it. It’ll help you avoid headaches down the line.
Don’t forget about quarterly taxes
As a small business owner, you’ll soon find that mastering quarterly taxes is essential to running a successful company. Paying taxes quarterly enables you to spread your tax responsibilities over the year and avoid surprises come tax time.
As a rule of thumb, if you owe taxes of $1,000 or more, business owners must pay taxes four times a year. You may face penalties if you do not pay at least 90% of the taxes you owe.
Some other important tax dates/deadlines include:
- S Corp – March 15th
- C-corp/personal – April 15th
- 5500EZ – July 31st
- Payroll – December 31st
- 1099s – January 31st
Choose the appropriate business structure
Business owners can structure their business in different ways. Because different business entities dictate how much you will need to pay in taxes and how you file, it is important to choose the business entity that is best for you.
The most common options include:
LLC: This is the most popular entity structure, protecting its members from personal liability associated with debts and legal actions from the business.
Sole proprietorship: This is an unincorporated business on your own. The profits solely belong to you, as do the risk and debt.
Partnership: This entails sharing your business with others. General partnerships, limited partnerships and joint ventures are the main types of business partnerships. But while easy to form, with partnerships (like with a sole proprietorship), there’s no liability protection, leaving you open to lawsuits.
Corporation: This is a separate legal entity owned by shareholders in which the business holds all liability and debt.
S Corporation: This type of corporation enables profits and losses to pass through shareholders instead of the business, which prevents double taxation.
Take advantage of tax breaks
There are numerous tax credits available to businesses. Be sure to take advantage of the following deductions:
- -Startup costs
- -Business loan interest
- -Work opportunity credit (credit awarded to businesses that hire employees from specific populations that have difficulty gaining employment.)
- -Disabled access credit (credit awarded to businesses that provide access to individuals with disabilities.)
- -Alternative motor vehicle credit (credit awarded to businesses that drive green.)
Hire a CPA
Now, I know there’s a little confusion over what exactly a CPA does, so here’s a quick breakdown of their duties:
CPAs can give you advice to help minimize your tax burden throughout the year, which helps ensure there won’t be an audit or any questions from the state or local authorities.
Having a CPA audit your business’s finances and economic data is a great way to avoid getting called in front of the IRS. CPAs will give you an unbiased report and make sure everything is up to snuff.
Do you have accounts receivable that need collecting? Do you need invoices sent out? Have all your vendors been paid? A CPA is an excellent choice for making sure bills get paid and money that customers owe you makes it into the bank.
Tax Preparation & Filing
Your CPA will prepare your tax return and, if necessary, get a filing extension. They can make sure your quarterly taxes are filed correctly and on time, keeping you from having to pay late fees and making sure you’re taking advantage of all the tax benefits available to business entities.
Without a CPA it’s your job to handle all of these tasks while simultaneously juggling all your responsibilities as a business owner.
While starting a business is an exciting experience, managing taxes can feel daunting. But understanding exactly how to navigate the tax maze can help you focus on making your business a true success.
Incorporating is the most powerful thing you can do to legitimize your startup. And at IncAuthority.com, our setup LLC services are 100% free. Always. So, don’t wait. Form your new LLC today and enjoy the protection due to you and your business under the law.