Running a business is hard and expensive enough! With the added stress of tax season, it can feel impossible. According to a small survey, about 93% of small business owners have overpaid on their taxes at one point. Here are some tips to help you and your business during tax season.
- Hire The Right Accountant.
If your accountant only offers services during tax season, you should explore other options. Your accountant should work with you throughout the year to track income and spending and ensure you don’t have issues with your cash flow. Most small businesses don’t understand the importance of accounting for the survival and growth of their business.
- Keep Adequate Records.
Keeping thorough and accurate records throughout the year will ensure that your tax return is correct. When you don’t do so, you could be leaving out deductions or risking an audit. If you do not hire an accountant, invest in accounting software that is user-friendly and helps you keep track of your finances.
- Separate Your Business and Personal Expenses
Use a separate bank account and credit card for your business and run only business expenses through that account.
- Keep Track of Your Business Expenses. They Matter.
Keep every receipt. Find a way to corral all loose receipts lying around. They can add up to a lot of deductions. Of course, keeping receipts for an entire year can seem unrealistic. Pieces of paper are easy to lose or toss away. However, 1tapreceipts is an app that captures, stores, and organizes all your receipts in one location. You’ll be able to import receipts from photos as well as forward email invoices from your inbox.
- Correctly Classify Your Business
If you are not properly classifying your business (LLC, Sole Proprietor, etc.) you run the risk of paying more in taxes.
- Pay For Your Retirement Now.
A self-employed worker’s taxable income can be reduced by putting additional money toward a traditional retirement account. Your money isn’t taxed until the funds are withdrawn in retirement. Consider looking into a traditional or Roth IRA today.
- You Probably Have a Home Office. Deduct it.
You can deduct expenses related to your home office. This includes mortgage interest payments, repairs, utilities, internet service, etc.
- Hire Family Members to Work For You.
If you have relatives that can help with essential business tasks, you can save money. Hiring a family member means you can take a business deduction for reasonable compensation paid to that person (lowering your taxable income), and it can also result in your being able to avoid taxes such as FICA and FUTA.
- Section 179 is Your Best Friend.
Section 179 allows small business owners to earn deductions from their equipment and avoid depreciation by valuing it at the year it was purchased. Business equipment implies anything a small owner may need to run their business, such as office furniture, computer items, etc. A Section 179 calculator can help you determine how much you can save.
**Keep in mind section 179 doesn’t automatically kick in, you must fill out “Form 4562” to elect it.
- You Can Deduct Car Expenses.
You must calculate what percentage of time your car is being used for work. There are two types available for this deduction…
-the IRS’s standard mileage rate
or
-your actual car expenses (including insurance, gas, and repairs). Figure out which one makes the most financial sense before filing so you can maximize your savings.
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