In the United States, tax season is fast approaching. However, for most small businesses, the idea of dealing with taxes is a year-long marathon. Whether you’re new to the race or a veteran, a small business owner can always use new insights and new ideas on how to prepare for the middle of April. As a fellow small business owner, here are a few of my favorite tax tips for small business owners.
Tip # 1: Know the Difference between an “employee” and “independent contractor”
If your business is going well, chances are you’ve hired on some extra help. The type of help — either employees or independent contractors — has a significant impact on what you do at tax time. Make sure that you know the difference, both legally and ethically speaking. Also, make sure your records are accurate in this regard. If your business is ever audited, this will be important information indeed.
Tip # 2: Invest in a good tax software program or a qualified CPA
I really can’t stress this enough. Business taxes are complicated, to say the least. Often the free tax software programs geared toward the individual tax filer simply won’t cut it. Yes, it will cost you initially, but in the long run taking your business taxes to a qualified professional or using a good professional software program will save you thousands of dollars, if not more.
Tip # 3: Don’t Rob Peter to Pay Paul
It can be tempting to move money from the employee tax funds (you do have funds set aside for employee taxes, right?) to pay for emergency expenses, but I would advise against it. Trust me, this is one of the areas where the government is quite stringent, and they will discipline you quite harshly if they feel the need. Also, if you’re having trouble paying your taxes, there are options available such as deferred payments, or payment plans.
Tip # 4: File, even if you can’t pay right away.
While I haven’t made this mistake, a few of my other fellow business owners have, and the results have been disastrous. Here’s the thing. Just because you ignore a problem, that doesn’t mean it will go away. In fact, in the case of business taxes, the problem will only get worse. By filing, even if you can’t pay right away, you provide the IRS with an easy way to keep track of how much you owe in back taxes. If you don’t, they’ll take the time to put together your own tax return, and chances are they won’t use as many deductions or be as forgiving as you will.
Tip # 5: Keep Your Records for at Least 3 Years
Personally, I keep accounting records for seven years before I purge, but the minimum you should keep them is for three years. That way if your accountant or the IRS needs to verify records or information, you will have it available.
What other tax tips for a business can you think of? What are some of your favorites that I missed? Comment below!