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5 Tax Filing Tips For New Small Business Owners

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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. Here are some steps to effectively separate your finances:

  1. Open a dedicated business bank account and use it exclusively for business transactions.
  2. Obtain a business credit card for business-related expenses, keeping them separate from personal purchases.
  3. Establish a clear policy for reimbursing yourself for business expenses paid with personal funds.
  4. If you’re operating as a corporation or LLC, consider paying yourself a regular salary to create a clear boundary between personal and business income.
  5. Maintain separate accounting records and financial statements for your business.

By keeping your personal and business finances separate, you’ll simplify tax preparation, improve financial clarity, and reduce the risk of commingling funds, which can jeopardize your liability protection.

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 Deductions & Credits Are Available to You

One of the most effective ways to reduce your tax burden is by taking advantage of available deductions and credits. Deductions lower your taxable income, while credits directly reduce your tax liability. Here are some common deductions and credits for small business owners:

Deductions:

  • Home office expenses
  • Vehicle expenses for business use
  • Travel and meal expenses
  • Advertising and marketing costs
  • Professional development and education expenses
  • Depreciation of business assets
  • Health insurance premiums

Credits:

  • Small Business Health Care Tax Credit
  • Work Opportunity Tax Credit
  • Research and Development Tax Credit
  • Disabled Access Credit

To maximize your tax savings, keep detailed records of all business expenses and consult with a tax professional to ensure you’re taking advantage of all available deductions and credits applicable to your specific situation.

For a more complete list of the tax deductions available, be sure to download our Tax Deductions for Small Business Owners tax guide.

Tax Deductions for Small Business Owners pdf download

5. Hire a Tax Professional

Although many small business owners handle their own taxes, there are situations where professional help is invaluable. Consider hiring a tax professional if:

  • Your business structure is complex or you’re considering changing it.
  • You’re unsure about which deductions and credits apply to your business.
  • You’ve experienced significant business growth or changes in the past year.
  • You’re facing an audit or have concerns about compliance issues.
  • You simply don’t have the time or desire to manage your taxes yourself.

A qualified tax professional can provide personalized advice, ensure compliance with tax laws, and help you develop effective tax strategies. When choosing a professional, look for credentials such as Certified Public Accountant (CPA) or Enrolled Agent (EA), and consider their experience with small businesses in your industry.

Need help with your business taxes? Call Tax Defense Network at 855-476-6920 and get a free quote today!