Small Business Tax Help and Advice: 11 Tips to Know Today
Written by Amanda Bower | Published: October 25, 2022
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Paying taxes is a crucial business obligation you must fulfill to remain compliant. Though most businesses consider the process to be stressful, it doesn’t have to be. With appropriate planning and help, you can make your small business’s tax payment an efficient and stress-free process. Besides, tax planning has many benefits, including taking advantage of allowable deductions to reduce your tax liability and making smart decisions to enable your future growth.
According to Forbes, tax planning could also save time and minimize potential errors. Mostly, in a frantic move to benefit from tax deductions, some people often spend more than they would or make large purchases at the wrong time, all errors they could avoid with a proper tax plan.
In this article, we discuss 10 tips you can start implementing now and ready your business for a smooth tax season.
11 Tax Planning Tips to Make Your Year Easier
From preparing your books early for a stress-free tax season to leveraging opportunities for tax deductions, credits, and exemptions, there are loads of strategies you could maximize to make your year easier. Below are our top 11.
Understand Tax Lingo
Perhaps, the first step is to familiarize yourself with the tax terminologies commonly used. While you could hire someone to help with your small business taxes, broadening your knowledge demystifies the process, enabling you to make more informed decisions.
While we may not exhaust every tax term related to your business, here are some of the basics you should know.
- IRS – IRS stands for Internal Revenue Service, the government agency mandated to enforce tax codes and collect taxes.
- Taxable income – This is the amount of income subject to taxes. You compute taxable income by subtracting the tax allowable business expenses from the gross income.
- Allowable tax deductions – These are deductions (e.g., business expenses) that you should subtract from the gross income to derive the taxable income.
- Tax credit – An amount deducted from the payable tax. For example, you could earn a tax credit as an incentive for conducting research, commonly known as R&D tax credit.
- Tax bracket – A tax bracket is a range of income taxed at a specified tax rate.
- Tax liability – A tax liability is the amount of tax payable to the IRS.
- Sales tax – This is a tax on retail goods and services.
- Payroll tax – This is a tax on employee salaries and wages.
- Property tax – This is a tax payable for valuable property.
- Withholding – Withholding means retaining a certain amount of income or revenue for tax purposes. Withholding tax requires quarterly tax payments.
- Tax exemption – This is the exclusion of certain commodities, services, individuals, or organizations from taxation.
- EIN – EIN stands for an Employer Identification Number, a federal tax ID issued upon registering a business. The number enables you to submit payroll taxes for your employees.
- Income tax – Income tax is a federal tax that businesses must pay on the income earned during the year.
Bring on an Accountant
Accounting is an essential business function. However, keeping the books updated can be a time-consuming endeavor, taking your time away from important revenue-generating activities.
Bringing on an accountant to take care of the financials can save you time and money while you concentrate on growing your business. Plus, accounts are experts on all things tax related. They can ensure your records are prepared and up-to-date for tax filing, and advise you on the tax benefits your business can leverage for short-term savings and long-term growth.
Claim All Income Reported to the IRS
As your business transacts throughout the year, different taxes accrue and are reported to the IRS. It’s crucial to account for all the incomes reported under your account, either through your business or others.
Separate Business and Personal
Even with a sole proprietorship, you should always keep your business and personal records separate for tax purposes. First, this enables you to track business spending and claim qualifying deductions to minimize your tax burden. Moreover, mixing personal and business records can lead to errors when computing taxable income, resulting in missed deductions or penalties.
Important note: If you pay yourself a salary, you should submit payroll tax for it separately (if it’s within the taxable threshold).
Keeping records not only gives you a clear view of your business’s financial position at any time but it eases up your tax preparation. In addition, it ensures you have the records organized should the tax authority decide to audit your business.
Set Aside Cash for Payroll Taxes
If your business has employees, the law requires you to withhold and pay their taxes. To remain compliant, you should budget for and set aside the cash you need to pay the taxes as they fall due.
Know What to Deduct
There are various business expenditures that are tax deductible. It’s crucial to familiarize yourself with them before computing the taxable income. Awareness of the possible write-offs ensures you don’t end up paying more taxes than you should.
Examples of allowable tax deductions include:
- Employee salaries and wages
- Office supplies costs
- Office rent
- Entertainment expenses (e.g., business meals)
- Business travel expense
- Startup costs (up to $5,000) for businesses started within the year
- Bad debts
- Home office expenses, etc.
These are just a few allowable deductions. You can find a comprehensive list here.
If you want to make contributions to further your business interests, you can enjoy a tax benefit by deducting them as a business expense. Donations to eligible organizations may qualify as charitable contribution deductions.
Prepare for Tax Season in Advance
We cannot emphasize this enough: preparing for the tax season in advance is the secret to a stress-free tax payment process. Waiting until the last minute to organize your records leaves little time to reconcile the books, find any missing documents, and, most importantly, take advantage of possible tax benefits.
The best way around this is to hire a professional to maintain your books up to date year-round.
Declare End-Year Bonus
If your business has been profitable, declaring an end-of-year bonus is an excellent way to reward yourself and your employees for their hard work. Once you declare it, you can deduct it from your profits, reducing your tax liability. Besides, the declaration shouldn’t affect your cashflows immediately since you can pay the bonus within a certain timeframe the following year.
Establish a Retirement Plan
Our final tip is leveraging tax-deductible contributions by setting up an employer-sponsored retirement savings plan. Though there are regulations and limits to the contributions, you can make massive savings in tax deductions.
The tax season is not something you have to navigate alone. Getting a team to help you stay on track of your small business’s tax preparations year-round can make tax season a whole lot easier. At hiline, we think tax season is the most wonderful time of the year (next to the holidays, of course)! Entrust your tax strategy to hiline, so you can focus on doing what you love while we do what we love. Visit our business tax services page here or contact us today to get started.
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