Starting a new business is an exciting venture. You finally get to choose what time to go to work, the services to provide, and who to hire. However, life can get busy and you may end up with small business surprises that carry a hefty price tag. One of those scenarios is when you realize the government is asking for more than you planned. Managing your budget on your first small business can be nerve-racking and probably the most difficult to start.
Tax time, especially, tends to be the most confusing for business owners, but with proper planning, you’ll be better prepared.
Separate your personal and business finances
New business owners make the mistake of combining their business and personal funds. The problem is that this makes managing your books much more difficult. An audit by the IRS requires you to have documents that support business expenses. For this reason, it’s essential to get a separate bank account for your business.
Implement a payroll tax software
Estimates show that one-third of all companies face annual fines for improper handling of payroll taxes. This is mainly associated with businesses that try to use spreadsheets or paper when creating their payroll. You can get payroll tax software that calculates, deposits, and files all your taxes for US-based customer support. Some companies also provide a free trial period to determine if the software will be a good fit.
Track all your expenses throughout the year
Lack of preparation is one of the reasons most businesses dread tax time. Fortunately, by implementing some things on a monthly or weekly basis can reduce stress. Start by setting up a filing system to keep all the paperwork in one place. Withdrawal slips, receipts, and deposits need to be stored in a respective monthly folder.
Also, take some time out to reconcile credit and bank accounts by comparing the receipts you have with the bank statements received. Furthermore, accounting software like QuickBooks Online allows you to input all your business expenses and revenue, to create reports. This will help you track the expenses incurred, and the revenue generated all through the year.
Consider changing your business structure
You may want to pick a new business structure if you are a sole proprietorship. An LLC can make a proposal to be taxed as an S corporation. This means only the LLC owner has the pay taxes. Otherwise, the LLC owner will have to pay a self-employment tax on all of the business’ net earnings.
Make use of fringe benefit plans
You can avoid additional employment tax costs for the business by paying for some fringe benefits for employees. Certain benefits you can offer employees include transportation and health benefits, educational and dependent care assistance, disability insurance and meals.
If you have unwanted, unused, or overstock equipment, consider donating it to declutter. Do not forget to keep records of any charitable donations you make through the business. Having proper records of any unsold inventory, unused equipment, property, or supplies is also important.
Cash in on tax credits
You can reduce your tax liability by taking advantage of the proper tax credits. There are different tax credits like small business health care tax credit which require you to have less than 25 full-time employees. You can also find a list of business tax credits.
Take advantage of tax deductions
You can reduce the amount of taxes owed as well as maximize any refund by taking advantage of tax deductions. Some of these deductions include:
- Insurance premiums: Includes any long-term care, dental, or medical insurance paid out of pocket.
- Car expenses: Includes gas and mileage utilized for business purposes. It also includes repairs, maintenance and auto insurance.
- Home office deductions: Includes an expense deduction for the dedicated space in the home used for a home office.
- Office supplies: Includes items like pens, paper, computers, printer ink, and other office equipment.
Put the profits in retirement plans
Contributions to retirement plans are exempted from taxation. Nonetheless, distributions are taxable in the future. You can choose from different retirement plans available.
Go through the Small Business Jobs Act Tax
The Small Business Job Act Tax became law in 2010. There are over ten initiatives meant to provide savings for small businesses like Nuskin as well as decrease their tax burden.
Most small business owners consider tax time a long and overwhelming process. However, with the above tips, you can maximize your tax benefits and enjoy a stress-free tax time. Taxes are an obstacle for any company, especially smaller ones. Do your business a service by studying up on the listed tips, relevant tax laws, and by investing your due diligence to make certain your company is in the best situation.
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