Owning and operating a business is a dream for many individuals. However, business ownership comes with numerous responsibilities. Among the less enjoyable aspects of owning a business are bookkeeping and paying taxes.
Throughout the year, and especially when tax time is approaching, it’s important to make time for tax-related tasks. Staying on top of it will help the process go more smoothly. In this article, we share some of the most helpful small business tax preparation tips to help you get through tax season without any issues.
Separate Business Expenses & Personal Expenses
It seems obvious but bears repeating: Don’t mix your business and personal expenses. Business purchases should only be made using business credit cards. Personal purchases should only be made using personal credit cards. Your business’s finances should only flow through company-specific bank accounts.
Mixing business and personal finances not only makes a mess of your accounting but also could put up red flags to the IRS.
Keep Good Records
When it comes to tax preparation for your small business, accuracy is essential. A good way to ensure your business tax return is correct is to keep good records throughout the year. To avoid falling behind and losing track of things, recordkeeping work should be done frequently — monthly, if not weekly.
It’s highly recommended that all business owners utilize, at minimum, basic accounting software. Accounting tools like QuickBooks are easy to use and affordable. They are designed to help businesses save time, reduce errors and generate insightful reports. Plus, they consolidate business finances including invoices, expenses and payroll.
Speaking of payroll, one of your legal obligations as a business owner is reporting, withholding and paying payroll taxes. These include:
- Social security tax
- Medicare tax
- Federal income tax
The IRS performs quarterly checks to ensure payroll taxes have been paid. Make sure you stay on top of payroll. Again, accounting software can help with this.
Maximize Tax Deductions
To lessen your tax burden at the end of the year, claim as many tax deductions as possible. Just make sure they are qualified business tax deductions.
For a list of common tax deductions business owners can and can’t claim, read our article.
To make things easier for yourself, start planning well in advance of tax time. Many experts recommend doing some tax planning each quarter and to really start focusing on it in November as the end of the year approaches. This will enable you to forecast your tax situation and start preparing for it.
A helpful tax planning tool to keep you on schedule is the IRS tax calendar.
Hire a Professional to Help with Your Business Tax Preparation
Even a small business with straightforward accounting needs can benefit from hiring an accounting firm. An experienced local accountant can free up time for you by managing your taxes or, if you choose, your entire accounting department. They can monitor your financials throughout the year and provide advice to improve your business’s financial health and share tax preparation tips to have you ready once tax season rolls around.
At Kilday, Baxter & Associates, we offer business tax preparation and business tax planning services, along with business support services including payroll, bookkeeping, business consulting, QuickBooks training and QuickBooks support.
We are available year-round to help you and answer your questions. Contact us to speak with one of our experts or schedule an appointment.