Tax Planning Tips for Small Business Owners
May 13, 2016
Tax season is the one time of year that small business owners dread the most, but pushing thoughts of filing requirements and deadlines to one side, will only make matters worse.
Tax planning, if kept up to date throughout the year rather than just during tax season, can help you sail through your returns instead of wading through them, and here are six top tips to help you plan your taxes:
- Start planning early: During the day to day running of your small business, it can be easy to forget about filing receipts and financial paperwork as you go along, but this really is the best way of keeping on top of things. If you can’t do it every day, try to dedicate a certain amount of time to it each week or month, and make sure that everything is labeled clearly and filed in a workable system. If you’re planning on hiring the help of a professional, it’s advisable to begin your search for a suitable accountant earlier rather than later, as if you wait until the tax season is in full swing, your options may be limited.
- Make your choice between cash or accrual: If you’re planning to prepare your own tax returns, then the cash method may be advantageous here as it is often more straightforward. The accrual method of accounting has its focus upon reporting earned income, and not just cash that your business has received, which some companies prefer as it matches expenses and revenues.
- Make sure you know which forms you need to complete: The forms your small business will need to fill in are dependent upon the legal structure of your company. If you are the sole owner of your business, you can report your income or loss on schedule C of your own, personal tax return. LLCs, or Limited Liability Companies will require separate tax returns as they are usually formed to ensure that business assets are kept apart from personal assets. You will also need to look at state and local tax requirements in advance of preparing your tax return, to ensure that you have all of the necessary data ready in time for the deadline.
- Find out if you qualify for tax credits: Whether your small business qualifies for tax credits, can change from year to year, and while basic tax credit information is sometimes built into tax preparation software, you might find it more beneficial to seek the help of a professional who can guide you through the many federal, state and local tax credit systems.
- Seek professional help: No matter how well you think you know the tax system, or how well you think you can cope with planning and filing your own tax returns, there is nobody who understands the tax system better than a qualified accountant and their assistance can be invaluable in ensuring that you meet deadlines and don’t make mistakes along the way. They don’t come for free, but tax penalties can be costly, so hiring a professional could easily pay dividends for you and your small business.
- Purchase accounting software: You may also wish to consider buying online accounting software, which can help you with many aspects of planning for the tax season, from tracking sales to generating financial statements and reports that a tax professional can refer to when preparing your returns.