With the majority of small business owners worried about under or overpaying the IRS every year, it’s perhaps little wonder that so many of them choose to invest in accounting and tax services. But is it enough to hire them once a year, for tax season alone?
Everything that has an impact on your business, including such things as revenue and expenses, or payroll and insurance, can also have an impact on your tax circumstances. This makes it crucial for small business owners to try and stay consistently up-to-date with both their financial reporting and their estimated taxes. It should be a continual process, not a once-a-year event.
While an accounting firm in Coral Gables can help you achieve this, it doesn’t hurt to have your own understanding of the process, too.
The dangers of making your taxes a seasonal commitment
Tax season certainly exists, but only tackling your taxes at this time of year could leave you paying more or less than you should, and may even result in penalties or audits from the IRS.
It’s much wiser to take a proactive approach by monitoring your monthly and quarterly liabilities; putting yourself in a much better prepared position when tax season rolls around.
Methods for staying on top of your taxes throughout the year
Whether your business structure is a sole proprietorship, partnership, LLC, S-Corp or C-Corp, and no matter how much profit it generates, daily or weekly check-ins on your finances, is a good practice. You should also separate your personal and business expenses, to avoid errors when claiming deductions.
Here’s a closer look at some tried and tested methods for staying on top of your business taxes:
- Track your expenses as they happen, and categorize all transactions on a monthly basis.
- Maximize retirement plan contributions to benefit from the tax advantages associated with certain plans.
- Make estimated quarterly tax payments if you anticipate owing more than $1,000 for the quarter.
- Form an LLC or S-Corp which may entitle you to receive the Qualified Business Income Deduction.
- Regularly review inventory and all equipment purchased recently.
- With all important documents, scan and save them, and keep them for a minimum of three years for audit purposes.
- Schedule regular sessions with your accountant.
Tax mistakes to try and avoid
If you don’t choose to work with a local, you may find yourself making the following common mistakes:
- Incorrectly depositing employment taxes
Failure to deposit employment taxes correctly and in a timely manner, may result in penalties.
2. Not separating business and personal expenses
When claiming deductions, if you can’t easily prove which of your expenses are legitimate business-related expenses, you may miss out on them.
3. Missing filing deadlines
S-Corps must file by March 16th using Form 1120-S, along with partnerships using Form 1065. Sole proprietors must file by the 15th of April, using Form 1040 and Schedule C. A tax preparation service in Coral Gables will inform you of any approaching deadline.
When it comes to tax strategies for small businesses, they may vary significantly depending on the unique circumstances and financial position of each company. Working with a tax and accounting expert throughout the year can help you ensure that when it is tax season, there are no nasty surprises lurking in the shadows, and that you make all the tax savings you’re legitimately entitled to.