Business taxes can be very stressful if you don’t handle them correctly. Luckily, handling business taxes correctly isn’t too hard. All you really have to do is follow a short list of basic guidelines designed to make tax season go as smoothly as possible. You won’t have to worry about being audited, owing more money than you can afford to pay, or missing out on significant deductions. Every business leader wants to be that person who saves big on business taxes and therefore doesn’t dread tax season every year. You can be that person as long as you prioritize business taxes in the way that you run your business.
The results of adhering to the following guidelines will prove that contrary to popular belief, there is no single “secret” or “shortcut” to simplifying and capitalizing on business taxes. You just have to be really, really good at sticking to the fundamentals every business leader is well-aware of. Here are five basic rules of business taxes:
1. Keep Your Books Organized And Up To Date
Rule number one for business taxes is staying organized and up-to-date. All relevant documents, like receipts and statements, should be preserved and recorded. Most business leaders tend to update their books monthly but it’s easy to forget about expenses or deposits in a few weeks’ time. If this sounds like you, you might want to update your books weekly, which will improve your memory so that you can eventually switch to monthly. In addition to keeping all important information in one place, accurate bookkeeping is crucial for claiming business expenses and being prepared in the event of an audit. If you plan on hiring a bookkeeper, make sure he or she is using cloud applications that allow you to access the data at any time as well.
2. Find A Good Accountant
This can’t be emphasized enough. As you’ve probably noticed, the individuals who usually save the most money during tax season are those who had knowledgeable and dedicated accountants at their disposal. These business leaders factored business taxes into virtually all major spending decisions. How were they able to do this? Because they knew what they could and could not deduct, and that information comes from your accountant. Once you have familiarized yourself with deductions, you will understand how to develop a spending strategy that directly coincides with planning for tax season.
Many articles about business taxes suggest that it should be the business’s leader’s responsibility to know what to deduct. Well, tax laws change, and some business leaders aren’t financial wizards. You can wrack your brain writing out a list of possible deductions but your accountant will likely be able to produce a list that’s double the size in a quarter of the time. So, the next time you see an article give advice like “know what to deduct” or “make deductions work for you,” remember that these are just different ways to say “get a good accountant.”
3. Separate Bank Accounts
Business leaders are most susceptible to being charged with a false claim when they fail to separate business and personal expenses. You can avoid this scenario entirely by having a separate bank account and credit card for your business. This will allow you to clearly define which expenses and payments were personal or business-related. That’s one of the key differences between filing taxes as a business leader and an individual: having to show proof for deductions.
4. Know How Much To Pay Each Quarter
A critical advantage of staying organized and having a good accountant is knowing how much to pay the IRS each quarter. Your accountant will tell you how much of your income you should set aside every month for taxes, along with when to make quarterly payments. Assuming you know how much to save could be a mistake, since it could be anywhere from 25% to 35% of your gross income. Some businesses run the risk of having to pay penalties if they don’t pay quarterly estimates. Receipts from quarterly payments are also yet another important document to save with your records. You might need them to prove that you made the payments when it’s time to file your taxes.
5. Don’t Save Everything For One Day
Most business owners like to take care of their tax returns in a single day. They believe that devoting an entire day to this tedious process will make it less stressful. But then they realize that before going over deductions and filling out paperwork, they must first sift through piles and piles of documents and receipts. That might take a while. So, rather than saving both processes for a single day, split it into two. Take one day to gather all the materials for deductions you need and another to complete the actual tax return. Just like any other business endeavor, the more time you spend preparing for a task, the easier that task will be.