As a small business owner, you will have a lot on your plate at all times. In addition to your regular work, you must keep a solid grasp on your tax situation. One mistake, no matter how big or small it may appear, can cause you a lot of trouble.
Small business owners can benefit from following these seven tax tips:
#1. Hire professional help
Even if you don’t have the money to hire a full-time finance professional, you can still work closely with a CPA.
There is no replacement for having a knowledgeable CPA on your team. This person can answer your questions, take care of all your filings, and ensure that you never find yourself in hot water with the IRS.
What more could you want?
#2. Don’t pass everything off to your CPA
As important as it may be to have a tax professional on your team, it doesn’t mean you should completely remove yourself from this area of your business.
Stay in contact with your CPA in regards to your tax situation, such as how much you are paying, when returns are due, and other related details.
Related Topic: 5 Steps to Take if You Missed the Tax Deadline
#3. Have a strong record keeping system
This is one of the biggest mistakes that new small business owners make. They get so caught up in day to day tasks that they overlook the importance of a strong record keeping system. Subsequently, this leads them down a dark path.
Proper record keeping throughout the year makes your life much easier when it comes time to file returns and make other key decisions.
Note: gone are the days when record keeping was a “pencil and paper” system. You can now use technology to your advantage.
#4. Learn more about deductions and credits
In other words, answer this question: what can you do to reduce your tax liability? If you don’t know the answer to this question, your CPA can step in and provide you with guidance and advice.
Regardless of your industry, business size, or revenue, there is a good chance you qualify for multiple deductions and credits. As a result, you can save a lot of money on your taxes. And who doesn’t want to do that?
#5. Know the difference between a contractor and an employee
Worker misclassification can get you in hot water with the IRS.
For those who need more information on this topic, the IRS has you covered. You can visit this page of its website for details on how to accurately classify workers.
#6. Avoid audit “traps.”
This doesn’t mean you should be paranoid that the IRS is out to get you and your company. It does mean that you should be aware of potential red flags that could lead to an audit.
These include but are not limited to:
- Misclassification of workers (see point number five above)
- Home office deduction
- Large number of deductions
You never know if the IRS will decide to audit your business. However, you can avoid common audit traps to improve your chance of avoiding this unpleasant experience.
#7. Keep personal & business expenses separate
Do you make it a habit to claim personal expenses as business expenses? This is a common practice. This is also a practice the IRS is well aware of.
The best way to protect against this type of trouble is to keep good records. This way, if you are subjected to an audit you can back up your expenses with the necessary proof.
The life of a small business owner is never boring. From a tax perspective, there are things you should and should not be doing.
By following the seven tips above, you will feel better about what the future holds.
Image Credit: James Popsys