As a small business, you play a vital role in the economy – small but mighty as they say.
However, with the great opportunities that arise from business ownership, so do the responsibilities. And there’s no greater responsibility than correctly filing your taxes.
One thing is for sure, taxes must be done properly, otherwise, you’ll soon find yourself in deep water.
Are you prepared for tax season? Let’s find out.
First, what type of business are you? Because this is going to affect which taxes you are liable for and what types of documentation are required. Here’s a quick overview of what these are:
This is a generalization of the business categories and there are several sub-categories such as C and S corporations and limited liability partnerships.
Essentially, it’s important to consult with an attorney and accountant to properly classify your business because the classification affects how much tax you pay. Failure to do so can mean you are overpaying or incorrectly paying taxes.
One of the biggest and often overlooked steps of correctly filing taxes is having accurate financial records to draw the information from. After all, how can you possibly know how much tax to pay if you don’t know how much money your business has made?
Failure to keep accurate records extends beyond tax filing. If you are found to be non-compliant, you can quickly find yourself the subject of an audit or financial penalty.
Additionally, you could be doing yourself out of some nice tax deductions or tax credit eligibility meaning you end up paying more than you should.
Keeping accurate financial records isn’t difficult if you use accounting software or hire a virtual accountant.
Another critical mistake that small business owners make is mixing their personal and business finances. If that sounds like you, stop immediately!
If you get audited by the IRS and they find you mixing the two together, they could start looking deeper into your personal accounts which has the potential to cause problems. Plus, you can’t gain a clear picture of the financial health of your business if it’s all mixed up with your personal spending money.
At the very least you need a bank account and credit card that is used solely for business transactions. Never ever put business money through your personal account or vice versa.
The IRS also receives copies of the 1099-MISC forms you receive. This is so they can compare the income you’ve reported against what you’ve received to ensure it matches up.
If there is a discrepancy between the two amounts, then this can quickly land you in hot water. Especially if you’re reporting a lower income from what the IRS can see you’ve received.
Ultimately, make sure the two amounts match and you’re correctly and honestly reporting your income.
One of the best ways to reduce your tax obligations is through deductibles. These are eligible business expenses that you can subtract from the total of your owed taxes.
Even small expenses like magazine subscriptions can quickly add up, so make sure you’re diligent about recording everything and properly filing receipts.
Here are some of the key items you can deduct:
If you have employees, it is usual for the IRS to check if you have remitted your payroll taxes on a quarterly basis. Failure to do so could result in penalties and fines.
Employing the use of good-quality payroll software will ensure that payroll taxes are dealt with properly and in a timely fashion.
In the past, it was common for small business owners to shy away from hiring accountants or bookkeepers because of the expense involved in doing so. As a result, business owners with no financial experience whatsoever would try and deal with everything themselves – often with disastrous results.
We’re pleased to reveal that this is no longer the case because hiring outsourced financial professionals has become a convenient, safe, and affordable way to get the right financial management services.
At EvolveCFO, we specialize in providing remote accountants, bookkeepers, and other financial services to small businesses and startups. We offer affordable plans that can be scaled up and down as needed, with no lengthy or difficult contracts.
Our team consists of qualified and experienced individuals who will work with you to successfully file your taxes and ensure everything stays on track until tax season rolls around again.
If you’re panicking about tax season or simply want to get your books in order, don’t hesitate to get in touch with our team at EvolveCFO. Talk to us about your needs and we’ll match you up with the right financial professional. We’re looking forward to working with you.
*This blog does not constitute solicitation or provision of legal advice and does not establish an attorney-client relationship. This blog should not be used as a substitute for obtaining legal advice from an attorney licensed or authorized to practice in your jurisdiction.*