On average, 155,000,000 tax returns are submitted in the US every year. Despite this, tax preparation can often leave business owners feeling apprehensive.
So are you a business owner who is looking to get organized for tax season? In this blog post, we will discuss eight essential tips that will help make tax preparation for business a breeze.
By following these simple tips, you can avoid common mistakes and stay on track throughout the tax filing process.
1. Keep Your Tax Documents Filed and Organized
One of the most important things that you can do to prepare for tax season is to keep your tax documents filed and organized. This may seem like a no-brainer, but it is often overlooked. When tax time comes around, having all of your documents in one place will save you a lot of time and headache.
Another important tip is to keep track of your expenses throughout the year. This will help you deductions come tax time. Be sure to save all of your receipts and keep them organized in a safe place.
2. Know What Deductions You Can Claim
As a business owner, there are several deductions that you can claim on your taxes. However, it is important to know which deductions you are eligible for. The last thing you want to do is overpay on your taxes by claiming deductions that you are not entitled to.
If you are unsure of what deductions you can claim, be sure to speak with a tax professional. They will be able to advise you on which deductions apply to your business.
Some common business deductions are as follows:
- Office expenses
- Professional fees
- Travel expenses
- Start-up deductions
- Business entertainment
- Employee salaries
- Employee gifts
- Contracted labor
- Legal Fees
3. Choose the Right Tax Filing Status
Another important tip to keep in mind when tax planning is to choose the right tax filing status. This is important because it can impact how much tax you owe.
4. File Your Taxes Early
Another tax tip for business owners is to file their taxes early. This may seem like an obvious one, but it is often overlooked. By filing your taxes early, you can avoid the last-minute rush and ensure that your tax return is filed correctly.
In addition, by filing your taxes early, you may also be able to get a head start on any tax refunds that you are owed.
Don’t wait until the last minute if you’re engaging in any kind of tax planning services. One of the worst things that you can do is wait until the last minute to file your taxes. This often leads to rushed decisions and mistakes being made on your tax return.
Mistakes on your tax returns can result in hefty fines and penalties if submitted incorrectly. It’s always good to be over-prepared and early than under-prepared and late.
5. Correctly Classify Your Business
When tax time comes around, it is important to correctly classify your business. Preparing taxes for small business purposes can be a bit trickier than for personal reasons.
This is because the tax obligations of your business will depend on its classification. There are three main types of business classifications: sole proprietorships, partnerships, and corporations.
Each type of business has different tax implications, so it is important to choose the correct classification for your business.
If you are unsure of which classification to choose, speak with a tax professional. They will be able to advise you on the best classification for your business.
6. Remember to Claim Depreciation Value
Another tax tip for business owners using online tax preparation services is to remember to claim depreciation value. This is a tax deduction that allows you to write off the wear and tear of your business assets over time.
To claim depreciation, you will need to keep track of the cost of your business assets and their useful life. This information will be used to calculate the depreciation deduction on your tax return.
Things that depreciate include:
- Company cars
- Office space
This is a worthwhile tax offset and can be helpful to any business owners who rely on certain equipment or vehicles for their business.
7. Keep Your Business and Personal Accounts Separate
One of the most important tax tips for business owners is to keep their business and personal accounts separate. This is important because it will make it easier to track your expenses and income come tax time.
By keeping your business and personal finances separate, you will be able to more easily identify which expenses are tax-deductible. In addition, it will also be easier to prepare your tax return come tax time.
Keeping your business and personal accounts separate will save you a lot of stress and headaches come tax season.
8. Deciding Whether to Hire Employees or Hiring Contractors
Another tax-related tip for tax preparer business owners is deciding whether to hire employees or contractors. This is an important decision because it can impact your tax liability.
If you decide to hire employees, you will be responsible for withholding and paying employment taxes. However, if you decide to hire contractors, you will not be responsible for withholdings or employment taxes.
If the IRS deems that a freelancer or contractor that is working for you is an employee, you could be hit with big tax penalties. This will also mean that you need to back pay their Social Security and Medicare Taxes.
Tax Preparation for Business: Are You Ready?
Whilst tax preparation for business owners can seem like an insurmountable task, knowing some handy tips will go a long way to help fill out your tax forms correctly.
By following these tax tips, you can ensure that you are prepared come tax time. Taxes can be a daunting task, but by being prepared and knowing what to expect, you can make the process a lot less stressful.
If you have any questions about your taxes, be sure to speak with one of our tax professionals today. Contact us via our contact form, and we would be delighted to assist in your tax filing process.