Owning a business can be very rewarding. It gives you the freedom to determine where and when you want to work, as well as the type of work you want to pursue. Being your own boss, unfortunately, does come with a bit of stress – especially when dealing with taxes. There are, however, a few tips we can provide to make dealing with the IRS much more tolerable. Check out our top 5 tax filing tips for new small business owners below.
1. Keep Personal & Business Expenses Separate
One of the easiest ways to get in trouble with the IRS is to mix your personal and business expenses. Comingling money is a big no-no. It not only increases your chances of being audited, but also puts your personal assets at risk. Use a separate bank account and credit card for business purposes to ensure you don’t raise any IRS red flags.
2. Work With a Reputable Payroll Company
Next, it’s a good idea to hire a payroll company to help you with processing checks and submitting payroll taxes. Just be sure you pick one with a good reputation. Hiring a less-than-stellar service could lead to tax trouble. As the business owner, you’ll be on the hook for any late or unpaid payroll taxes regardless of who is in charge of sending them to the IRS.
3. Choose an Accounting Method
Another important decision you must make as a business owner is which accounting method to use. The two main options are:
- Cash – The cash method is the most common one used by small business owners. Under this system, income is counted in the tax year you received it and expenses are included in the tax year you paid them.
- Accrual – Under the accrual method, income is counted when it’s earned (not collected) and your expenses are included as they are incurred (not paid).
Many new business owners choose to use the accrual method since they may have unpaid expenses that exceed any uncollected income. Before you decide, however, we strongly recommend speaking with an experienced accounting or tax professional to determine which is best for you.
4. Know What Tax Deductions Are Available to You
Once you determine your accounting method. It’s helpful to also identify potential tax deductions. There are a plethora of deductions available that can help lessen your tax liability. Unfortunately, many small business owners miss out on them because they don’t even know they exist. Here are just a few of the most common:
- Advertising and marketing costs – the cost to promote your business is deductible. This includes radio and TV ads, printed brochures, business cards, and other related promotional materials.
- Auto expenses – For vehicles you use solely for business purposes, you may deduct 100% of their operating costs. If the vehicle is used for personal and business use, you can only deduct the business usage costs.
- Startup expenses – As a new business owner, you may deduction up to $10,000 in costs related to creating, launching, and organizing your business.
- Travel expenses – you can write-off most travel expenses for yourself and your employees when traveling for business purposes. This may include, but is not limited to transportation costs, tolls, lodging, and meals.
For a more complete list of the tax deductions available, be sure to download our Tax Deductions for Small Business Owners tax guide.
5. Hire a Tax Professional
Although you may be quite capable of preparing and filing your own business taxes, having a tax professional handle these tasks for you has many benefits. First of all, you’ll save yourself an average of 80 hours of tax prep time per year. That’s a lot of time you could be spending elsewhere helping your business grow. Next, a tax professional will be up-to-date on all tax code changes and can easily identify deductions and credits that can help you pay less in taxes. They’ll also make sure everything is filed on time and is error-free, reducing the possibility of a tax audit. More importantly, hiring a tax professional, such as Tax Defense Network, will also give you peace of mind. Should the IRS come knocking on your door, you’ll have someone in your corner who can represent you and help you find the best solution for any potential tax problem you may face.
Want to find out just how affordable working with a tax professional can be? Call 855-476-6920 and get a free quote today!