Running a small business can be daunting, especially around tax season. With ever-growing responsibilities to ensure your organization continues to function as smoothly as possible, finding the time to manage accounts can be overwhelming. Yet, it doesn’t need to be. Despite balancing so many duties, like choosing the right employees to add value to your team, product sales, marketing, and distribution, as well as operations management, maintaining records and following our small business tax tips will help ease the stress. Below are some fundamental tips that will help your small business handle the process with ease.
1. KNOW YOUR BUSINESS ENTITY TYPE
Submitting your documentation with the correct Business Entity Type is one of the most important aspects of filing. Know when, and how to file based on your company’s organization structure, for example: Sole Proprietorship, Partnership, Limited Liability Company (LLC), Corporation, Limited Liability Partnership (LLP), etc. Each of these entity types have different legal and tax requirements. Recognizing a company’s Business Entity Type is key to knowing when and how to file.
2. BE PREPARED
Another crucial piece of advice in our list of small business tax tips, is being well- prepared. Practicing great organizational habits will assist in knowing what to expense and what to deduct. Do the prep work and research how to pay and file estimated taxes and save for any upcoming obligations, as this will save you from future headaches. Have your accounting systems in place, keep documents organized and up to date, and everything ready to submit.
Keep all of your receipts, as they relate to your business. These could be used later to verify deductions or credits. Group receipts and documentation into categories for business income taxes, business related expenses, and employment taxes to help with organization. Stay up to date on the filing dates and deadlines for your business type by creating a tax calendar or by visiting this link from QuickBooks Intuit.
3. KNOWLEDGE IS KEY
Deductions and tax credits save small businesses money. Get familiar with deductions like building costs, rent, insurance, legal fees, and employee salaries and benefits. In addition, advertising costs, internet and phone services, and training and education costs may assist with a reduction in owed yearly income tax. Understanding and applying tax credits, depending on your business type, may further reduce the overall amount of taxes owed. The IRS offers more information on available business tax credits and deductions here.
It is important to understand and prepare for upcoming tax deadlines. Filing small business taxes on time and error free, can help you avoid a late-filing penalty. These penalties start at 5% and can go up to 25% monthly. Be sure to file all documents and payments by the deadline to avoid any fees, penalties, and interest when submitting tax returns.
4. SEEK ASSISTANCE
One of the most important small business tax tips we can offer, is to seek assistance when you need it. When managing accounts throughout the year, it is important to seek out the advice of accountants, tax advisors, and Certified Public Accountants for the financial health of your organization. These subject matter experts can help answer any financial questions or concerns you may have. They can assist with quarterly payment set-up and information and may offer recommendations for credits and deductions, specific to your company. Financial experts can also inform you of the requirements and best filing options for your Business Entity Type. In the unfortunate situations where tax obligations are unable to be properly met, they may advise on penalties, late fees, interest rates, and offer options to navigate disputes, and payment options.
Difficult situations can arise for many. In the event a business is unable to meet its obligations by the filing deadline, extensions can be requested. The extension form, known as FORM 7004, can extend the filing deadline by 6 months. However, failure to keep up with normal payments can result in fines. If there are further concerns with payment commitments, the IRS is willing to work with businesses and their owners. They also have live assistance to answer any questions and help set up payment plans or discuss options.
5. CHECK IT TWICE!
Responsibility for filing taxes falls solely on business owners. It is important to check, and double check that all forms are in order, all documentation provided, and all information and payments submitted correctly, the first time. Before submission, perform a quick review of all documents to ensure accuracy. Failure to do so could result in a delay in filing and potential fees and/or penalties.
Many companies utilize third-party services file their annual income tax returns. These may be bookkeepers, accountants, or financial advisors. While this option reduces pressure on the owner(s) of the company, it does not substitute the owner’s responsibility to file or the company’s culpability for taxes. Business owners should review documents prior to submission in order to avoid mistakes before filing annual returns.
All businesses benefit from yearly audits. This is a great time to review financial status and adjust as necessary. Explore potential tax credits and deductions that the company may be eligible for during the annual review. It’s also important to make any changes or updates to previous deductions or credits that may no longer be available. A multitude of factors could change the filing status, and as a best practice for business, it is important to stay knowledgeable of company financial outlook.
FINANCIAL COMPETENCY LEADS TO SUCCESS
With the upcoming tax season here, leverage your knowledge as a small business owner to help navigate financial management. Taking an educated approach and getting accustomed to the tax requirements of running a profitable business, like understanding Business Entity Type, preparation, and understanding business credits and deductions, will facilitate continued growth. Consistently seeking financial mentorship opportunities, asking questions, and reviewing documentation will lead to business savvy leadership and more proficient company structure.
INTERESTED IN MORE?
Want to learn more about small business tax tips? Gain more financial confidence in our upcoming webinars!
Business Impact NW offers Virtual Tax and Bookkeeping Coaching sessions with Lily Tran of TaxUSign throughout the year, and the next availability is on February 6th, 2024. Sessions are $40 for our clients.
For individuals employed in the “gig-economy”, Business Impact NW recognizes the importance of financial literacy. Delve deeper with our seasoned experts, as they offer guidance and wisdom through on-demand learning, with our virtual Gig Economy 2.0- Understanding Taxes and Bookkeeping As A Gig- Economy Worker course.
About the author
Emma Seymour is an experienced and accomplished Communications and Public Relations professional. A masterful storyteller, she excels at building relationships, curating compelling content, and crafting impactful narratives.
Alongside her professional accomplishments, Emma also dedicates herself to advocating for veterans, transitioning service members, and their spouses as a military spouse herself and former small business owner. She has been privileged to deliver keynote speeches and participate in speaking engagements that address workforce development, military initiatives, and childhood trauma. Emma cherishes her role as a mother to four incredible children and finds solace in hiking and road trips with her family and pets.