Small business owners and startup owners have countless responsibilities which can make running and managing a small business hard work. When you add the complexity of filing taxes, it can be hard to stay organized and keep track of financial data to file your small business taxes on time.
If you find your business scrambling to make the tax deadline each year, don’t worry, we’ve got your business covered with five helpful tips to help simplify your small business tax preparation.
Managing your small business taxes doesn’t have to be stressful. Set your business up for success by following best business practices, outsourcing professional resources, and staying organized to help file your taxes faster and ease your business’s financial and mental burden this tax season.
1. Consult an Accounting Professional
If you’re a new business owner and you’re not exactly sure what you can claim as a business expense or which accounting software is the best for your business, consulting an accounting professional to help you better understand the financial workings of your business could be a massive time and stress saver.
Certified public accountants can give your business personalized tax advice based on your business’s specific structure. This assures your business doesn’t make mistakes like paying too much or too little in taxes, which can be a huge help when you’re just starting.
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Look for an accountant who will work with your business throughout the year to help track income, spending, cash flow, and profits. Working with an accountant from day one and not just right before tax season will help ensure that your business is staying up to date with bookkeeping best practices and that everything is being accounted for accurately.
You can also seek business advice from your accountant on improving bookkeeping records, your business’s financial plan, and how to better understand your business expenses.
2. Separate Business and Personal Finances
One of the first things a small business owner should do when starting their business or startup is to divide personal and business expenses.
Mixing personal and business expenses could lead to legal problems, such as losing legitimate tax deductions. Small businesses need to be able to support their expenses and prove they are all deductible business costs which can be difficult when personal expenditures are mixed in with legitimate business costs.
There are several steps your business can take to separate business and personal finances:
- Creating separate business and personal bank accounts and designating a credit card solely for business purposes are two key ways to start safeguarding your expenses.
- It can be easy to grab the wrong credit card in a rush. It’s essential to properly document any personal purchases made on your business credit card in your bookkeeping system correctly so they aren’t accidentally deducted as business expenses.
- The opposite is also true. Make sure any business purchases you make on your personal accounts are noted and documented.
- It’s a good idea to scan your personal and business accounts each year before tax season to isolate any purchases that don’t belong to capture those expenses correctly.
By differentiating these expenses, it may be easier to claim deductions on tax returns and support those claims in the case of a business audit.
3. Prepare for Tax Season in Advance
Tax season can be a stressful time for many small business owners. But getting financial records and forms together before tax season rolls around can help your business meet and beat deadlines instead of scrambling to complete your tax returns on time.
Gathering all your financial records, including payroll, income statements, bank and credit card reports, and receipts, before starting your taxes can help you complete your business returns more quickly and efficiently because you’ll have everything you need to reference all in one place.
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Tax season is easier to navigate when you’ve identified the proper tax documents your business needs to fill out. Determining the type of forms your business requires will depend on the type of business you run.
- Find a comprehensive list of important tax information and resources to guide your business here.
It’s also important to capture every business expense and keep accurate reports.
- Your business can monitor reports for accuracy by pulling bank statements, reviewing/recording receipts and invoices and creating detailed expense reports, or investing in accounting software that can do it for you.
4. Stay Organized
A significant step to minimizing your small business tax return process is keeping thorough and accurate records all year.
Here are some tips to stay organized:
- Group tax documents into categories when storing them
- Back up your information (both paper and electronic documents)
- Use a business credit card to keep track of all your business expenses.
- Invest in user-friendly accounting software that helps you keep track of all your income and expenses.
- Use bookkeeping software instead of manual methods for an easier and more efficient process
5. Know Your Deadlines
Tax filing deadlines can vary depending on the business type. It’s good to know your business’s filing date in advance, as deadlines can also change from year to year.
Be sure to check your business’s tax deadlines in advance and add them to your calendar. The IRS provides a page explaining the importance of a tax calendar, including a link to download a business tax calendar that provides important dates, deadlines, and reminders to business owners for the entire year.
They also provide a more general online tax calendar than can be helpful as well.
Financial Resources
Turning to small business financing solutions to help your business fund some of the tips mentioned above can be a great way to get started when preparing to file your small business taxes.
Financing options such as lines of credit, merchant cash advances, or business credit cards can help your small business or start-up obtain the working capital it needs to purchase new accounting or bookkeeping software, hire a certified public account to help you review your finances quarterly, or keep your personal and business expenses separate.
- Line of Credit
A line of credit is a flexible financing option that allows quick access to a defined amount of working capital. Your business will be approved for a set amount of credit that it can draw on when needed, only paying fees on the balance that your business owes.
A small business line of credit could be used to hire an accountant to assist with filing taxes, deliver business advice, help improve bookkeeping records, or support the review of business expenses.
- Sales-Based Financing
Sales-Based Financing gives small businesses upfront access to a lump sum of working capital in return for a portion of their future revenue receivables at a discounted price.
Consider upgrading your bookkeeping, payroll, or accounting software with funds from sales-based financing to help make filing taxes smoother and more efficient.
- Business Credit Card
Business credit cards can be a flexible financing option for startups and small businesses.
Business credit cards help track your business expenses and are also a great way to keep your personal and business costs separate, which is especially beneficial during tax season.
Business credit cards can also help your business monitor spending, earn cash back, and build a business credit score.
The Bottom Line
Tax season is a busy time for small business owners and startups. But utilizing smart tax planning tips such as hiring an accountant, separating business and personal finances, preparing for tax season in advance, staying organized, and knowing your deadlines can help mitigate the stress of filing your business taxes.
Knowing how to prepare your business appropriately can make filing small business taxes easier this season.
