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There are many benefits of having your own business. Being a business owner gives you more control over your work schedule, the ability to hire others, and the opportunity to build a company from scratch. However, entrepreneurs also have responsibilities that can be less fun, like paying taxes.
Tax preparation is not something that many business owners enjoy, but they must do it every year. However, preparing for taxes is not as problematic or challenging as it might seem on the surface. The type of business you have can have a big impact. It is a good idea to consult with those offering company formation services, as well as tax accounting professionals. You can easily navigate the tax season by walking the tight line of the following tried and trusted tips. Rest assured, these tips will help you organize and streamline your taxes:
1. Separate Personal And Business Expenses
Separating business and personal expenses is difficult when tax season rolls around. Therefore, you should separate personal expenses right from the get-go. It is much easier to track business expenses for tax purposes when you have a separate account. Every receipt counts, whether it is for utility expenses, inventory, or operational purchases. A thorough collection of business-only data will save you time and stress when it comes to filing your taxes or handing everything over to your accountant.
2. Consult An Expert
Business taxes are very different from individual taxes. Most people are not able to comprehend the tax system, owing to its numerous complications. Accounting professionals spend many years studying the IRS rules and regulations to help taxpayers prepare their taxes. You may avoid costly errors by taking advantage of their superior knowledge.
Do not assume finding a suitable tax expert will require detailed online research or physical heel-dragging like before. The number of tax professionals has increased due to the growing number of online llm tax programs, which means you can connect with them with little to no effort. Having an online degree in their portfolio doesn’t question their credibility. You can count on these professionals for your business taxation.
3. Keep Accurate Records
First thing first, your tax return will be accurate if you keep detailed records throughout the year. According to tax experts, if you do not maintain impeccable records, you may be missing deductions. Or, to make the matter worse, you could put yourself at risk of being audited.
You will most likely forget to track expenses if you try to collect them all in a hurry before the deadline. So log your expenses on monthly intervals, if possible weekly or as they occur. Better still if you invest in basic accounting software. It will help you track your expenses and income. Don’t assume buying reliable software requires you to have deep pockets. Unlike in the past, technology is becoming increasingly cheaper, all thanks to the growing competition.
4. Deduct Home Office Expenses
Many small business owners work from home. However, not all realize that they can deduct expenses associated with their home office. To give you a better idea, we are listing some of the most common home office deductions below:
- Vehicle costs
The majority of small businesses own a van, truck, or other means of transportations. If you can show that the vehicle is used for business purposes, you can deduct the operating cost. As a business owner, you have two options to deduct vehicle expenses; the standard mileage rate and actual car expenses. The standard mileage rate method will allow you to deduct the cost of running your vehicle based on how much you use it for business purposes. On the other hand, actual car expenses will enable you to deduct costs associated with your business, such as gas, oil, repairs, and auto insurance.
- Insurance Costs
Savvy small business owners make sure that their company has at least one type of business insurance. You can deduct 100 percent of the premiums paid for business insurance, such as business owner’s insurance, health insurance, and malpractice insurance.
- Rent Costs
A fair proportion of small business owners run their companies from home. If you are also one of them, you could get away from rent overheads while paying taxes. What is more, the law may also exempt you from rent payments for office equipment. But before qualifying for these relaxations, you must show that your business is profitable.
5. Take Advantage Of Penalty Relief
It is not uncommon for businesses to face penalties from the IRS (Internal Revenue Service). But the good news is that you could be eligible for penalty relief in some cases. Penalty relief is available for certain scenarios, such as failing to pay taxes on time or filing a tax return after the due date.
You can apply for relief if you have failed to comply with the legal requirements or were unable to do so due to circumstances beyond your control. Everyone can’t be entitled to the exemption, but it is worth checking if you are. You will get your money back if you make an honest error.
6. Calendar Holds The Key
A small business generally files its income tax returns only once per year. However, payments are necessary throughout the year. Payroll taxes are filed at the end of each quarter or every year. Payments can also be made after each payroll. That is where a tax calendar comes in handy. It is one of the essential tools for tax planning. You can use the calendar to track important dates and deadlines. You may also utilize it to list the due dates for payroll deposits.
Wrapping Up
Understanding your local, federal, and state taxes is crucial for your business’ success. Every business is liable to pay taxes. However, the type of business entity you have will determine which taxes you need to pay and how you should go about the filing process. Regardless of all these factors, sailing through the tax season is a breeze if you strictly follow the tips mentioned above.
You may also like: 6 Helpful Tax Deductions for Small Businesses
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