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Imagine starting the business of your dreams only to receive a massive tax bill at the end of the year. If you want to avoid that, you need to start using tax tips from the start.
Then, you can keep your small business finances in order. Doing taxes next year will be a breeze if you do the following things now.
1. Choose the Right Business Structure
One of the most underrated tax tips for small business owners is to select the right business structure. You can choose from structures such as:
- Sole proprietorship
- Partnership
- Limited liability company (LLC)
- C corporation
- S corporation
Sole proprietorships and partnerships are the easiest to start since you don’t need to file official paperwork. Limited liability companies are good for a lot of small businesses, and they have a similar tax situation.
If you form a C corporation, you may face double taxation. This is where your corporation has to pay taxes on its profits, and you also have to pay taxes on what you earn, so you may want to avoid this structure for now.
2. Get an Employer Identification Number
If you plan on hiring employees, you’ll need an employer identification number (EIN). It also helps to have an EIN as a sole proprietor since you can protect your social security number (SSN).
Partners will want to get an EIN for the business as well. Once you receive the number, you’ll want to keep it in a safe place to help protect your business.
Then, you won’t have to rush to keep the number out of the wrong hands. You can learn more about what happens if you lose the EIN by reading https://silvertaxgroup.com/lost-misplaced-ein/.
3. Start Saving Early
If you want to manage your small business finances well, you need to save for taxes throughout the year. When you’re a sole proprietor, you will need to pay quarterly estimated taxes.
Other business structures will have to pay taxes throughout the year as well. Doing this can help reduce the amount you have to pay in business taxes at the end of the year.
You can also avoid massive penalties for paying taxes late. Be sure to save about 20 to 30% of your business income to help cover your tax bill.
4. Maximize Your Tax Deductions
When filing taxes, consider what deductions you can take. Small businesses may qualify for a variety of tax deductions, from the cost of new supplies to the cost of employee benefits.
Depending on your business, you may not qualify for every possible deduction. You can only take deductions that are reasonable based on your industry.
If you want to make the most of deductions, talk with an accountant. They can go over your expenses to help you lower your taxable income and reduce your tax burden.
Start Using These Tax Tips Now
Whether you just started your business or have had it for years, it never hurts to learn new tax tips. Be sure to consider how you can set up your business and save for taxes.
Then, you’ll be able to maximize your profits to help your business grow.
Do you want to learn more about running your business? Check out our business section for more content.