Numerous Americans have long desired to become business owners. After all, having your own business and being able to make a livelihood doing what you love has many advantages on its own. But the cost of running your firm can become a barrier to success. Having said that, effective tax administration is a key element of managing your company’s finances, which can help make it a successful, rewarding business. If you don’t do it properly, your taxes may catch up with you, and your company may be subject to an IRS tax audit you could have avoided in the first place.
However, managing your taxes won’t be difficult if you remain organized and follow the latest tax strategies. The bottom line is that a little organization and planning may go a long way. With that in mind, let’s take a look at some of the most effective tax strategies that small businesses should use to remain in the clear. By doing so, you will be able to save money and time while avoiding an unnecessary IRS audit.
Onboard a Tax Accountant
Regardless of how prepared and organized you are for the upcoming tax season or how carefully you keep your financial records, hiring a tax accountant is always a good idea. These experts are familiar with the nuances and difficulties of the tax management process for small businesses. They may also assist you in finding deductions that you may have overlooked in the past. Your tax accountant will also keep an eye out for any changes to the tax code that could impact your company.
So, whether it’s passing a Schedule C audit or claiming deductions, a professional tax accountant will be the best weapon in your arsenal. They will make sure your taxes are filed appropriately and on time so you don’t have to incur late payment penalties and fines.
Tax laws are not static but dynamic, constantly evolving every day. Given this ever-changing landscape, small business owners must stay informed about changes that could impact their tax strategies.
However, to navigate these intricate tax complexities successfully, consulting with a tax professional is advisable and paramount. These experts possess the expertise and knowledge to guide small business owners through the intricacies of the tax system, ensuring that they are utilizing the most effective strategies to save on taxes.
Most small companies have the option to deduct depreciation for the deterioration of their business assets over time. For example, you may be able to deduct the depreciation on your company computers or fleet of trucks. Furthermore, the IRS classifies business assets, which include automobiles, furniture, and machinery, as depreciable items.
To further minimize your tax burden over time, you can also claim depreciation on your property. However, only deduct your costs if you anticipate making a profit. Otherwise, it will be a massive waste of time and will not help your cause at all.
Manage Your Payroll Properly
If your small business has employees ranging between 50-100, there are several tax forms and regular payments you’ll need to consider to avoid getting in trouble with the IRS. Getting control over your payroll is essential for this particular reason. Every employee is required to complete a W-4, which should reflect their Medicare and Social Security payments. Additionally, you must submit the W-2 and W-3 forms to the Social Association annually.
However, if all of this seems new to you, don’t worry! Many business owners just starting out have accountants submit their taxes accurately and on schedule. So, take a page from their books and hire an accountant ASAP.
Track Business and Personal Expenditures Separately
Most small business owners usually invest their own personal money into expanding their company. That is an undeniable fact. However, such a thing often leads to the merging of business and personal accounts. And it would be smart not to undervalue the impact of keeping your personal and company expenses separate.
In fact, you can prevent misunderstanding when it comes to submitting your company taxes by separating all your personal accounts from your business accounts and meticulously documenting your outlays. Furthermore, you are legally obligated to keep your business financial records if your company is run under the corporation or LLC legal structure.
Improve Record Keeping with Accounting Software
Even though all small businesses tend to be more concerned about expanding their business, they sometimes neglect to keep track of every financial transaction. They must, however, begin doing so right away.
If you are among these business owners, you should also utilize accounting software. These accounting systems and apps will significantly improve tax management. You must be as specific as possible while logging your spending and purchases.
Nevertheless, you can accurately classify your payments and transactions with such software. Furthermore, with such precise and appropriately categorized record-keeping, you can generate accurate financial statements, spot anomalies between accounting systems and bank records, and save effort and money when filing your taxes.
Don’t Forget About Maintaining Your Financial Statements
You can take advantage of a ton of benefits when preparing and planning for tax season if you accurately keep and update your business’s financial accounts. By doing this, you will be able to assess the health of your firm while figuring out your operational sales, liquidity, and profit margins.
Furthermore, precise financial statements provide your tax accountant or advisor with information to help them simplify the tax filing procedure for your business. Also, proper financial accounts help you file the right amount of taxes, keeping the IRS on the back foot.
Small business owners often think of the tax season as something that comes around yearly. While this is true for most, it does not have to be. Taxes should be given importance if you plan to remain in business for the foreseeable future. This is especially the case for a country like the USA, where the IRS scrutinizes every business under the lens of a microscope. However, with the help of the effective tax strategies shared today, you can remain clear and avoid the dreaded IRS tax audit in the future!