5 Tax Tips for New (& Old) Business Owners
Just mentioning taxes to new and aspiring business owners can cause a lot of stress. I get it! No one wants to be on the wrong side of the IRS. But you can’t let taxes intimidate you from making your dream a reality because it’s part of the process.
Here are 5 tips about taxes that can help you take the stress out of Tax Day:
The right accountant is worth the money!
Don’t believe the hype that accountants are only for well-established big businesses! Having the right accountant is what will help establish your business. Your accountant should be able to prepare financial statements, and work with you to track income and spending, monitor cash flow as well as your gross and net profits. In the beginning, you may only be able to afford an accountant at tax time, but set a goal to keep them on all year round. That way, your payroll taxes, expenses, deductions and more can be in line so that tax day is just another day for you because you’re PREPARED.
Keep business and personal accounts and expenses separate.
You may not think it makes a big difference in the beginning because the expenses are small, but have that big business mindset! If the IRS audits your business and sees personal expenses mixed with business expenses the IRS could start looking at your personal accounts as commingled funds. Separate bank accounts and credit cards for your business are worth the trouble and will make running your business much easier in the long run.
Make a smart plan to pay your taxes
At tax time, it seems like everyone around you is at 1 of 2 extremes...they’re expecting their refund or stressed about taxes they owe. The bad thing about taxes is they have to be paid. However, the good thing about taxes is that they’re absolutely predictable. Make a plan (err on the conservative side) for what you expect to owe for your business and personal taxes and set aside that money every month. If you plan it right, the payment won’t be such a stress and could possibly net a few dollars. But however you manage it, make a smart plan (with your accountant if possible)! Check with your accountant to see if you come out better paying estimated taxes quarterly instead of a big lump sum tax payment in April.
How you classify your business makes a difference.
Your business is your passion and OF COURSE you’re the expert on the kind of business that it is. But remember, that great branding is wholly different from how you classify your business with the IRS. Classification mistakes can make you overpay taxes or lose out on incentives and programs that could help you build bigger. Do your research and discuss with your accountant or attorney the differences between a C Corporation, S Corporation, Limited Liability Partnership, Limited Liability Company, Single Member LLC or Sole Proprietor — because they all have different advantages and disadvantages.
Deductions! Deductions! Deductions!
Small businesses can write off a number of expenses as tax deductions to help lower the amount they owe on their income tax.
Work-related car use
Home office expenses
Telephone and internet expenses
Professional service fees (i.e. accountants, lawyers, business consultants, etc.)
Child and dependent care
Advertising and promotion
REMEMBER: everyone’s situation is different and before you claim a deduction, run it by your accountant to be sure it fits IRS guidelines.
Go forth and get those taxes RIGHT!