Taxes are one of your most significant expenses when running a small business. In addition, tax season is a stressful time that can easily lead to mistakes if you’re not adequately prepared. The good news is that, with some planning and preparation, you can minimize your tax liability and file your return accurately. The actual Interesting Info about Small Business for Tax Season.
Whether you use a professional or manage your accounts, you must be organized and clearly understand the tax laws that apply to your specific business structure. A good accounting software solution will help you organize your business records, reduce mistakes, and make filing easier. Additionally, many accounting platforms like Xero, QuickBooks, and Sage are compatible with your e-commerce store and can automatically create reports to help you understand how your business is performing.
Staying current on the latest federal and state tax laws is also essential. Keeping up with changes will ensure you file correctly and not get hit with surprises at tax time.
You should also be familiar with your home state’s business tax rules. If you don’t, your local accountant can help you determine the correct filing requirements for your business. Lastly, keeping up with your payroll tax obligations would be best. Payroll taxes aren’t as simple as sales taxes and require careful attention to detail.
A common mistake small businesses make is mixing personal and business finances. This makes it challenging to track deductible expenses and can complicate bookkeeping. Separating your personal and business bank accounts and credit cards is best. Additionally, providing the bookkeeper with reconciled accounts is essential if you outsource your tax preparation. If you have unreconciled accounts, it will take your tax preparer longer to file your return and may result in a higher bill.
Another mistake is not boosting or reducing estimated tax payments as needed throughout the year. Depending on your needs, this can cause your business to be overtaxed or undertaxed. An experienced accountant will be able to advise you on the best way to adjust your estimated tax payments throughout the year based on your current income and cash flow.
Finally, it would be best if you always worked with an experienced accountant. Chandra Bhansali says to Look for someone who offers more than just preparing financial statements and completing your taxes. They should be able to assist you with tracking your income and spending, ensuring that your business is classified correctly, and determining your gross and net profits. They should also be able to advise you on strategies to improve your business’s profitability, such as using landed cost rather than buy cost for inventory-based businesses and cash versus accrual for an income-driven business. This will improve your company’s profitability and reduce the money you borrow to fund operations.