Running a small business can be incredibly rewarding, but also extremely challenging. There are many tasks that must be accomplished, and some of them require quite a bit of specialized knowledge.
Filing taxes correctly can be one of the trickiest tasks for business owners who aren’t financially inclined, but it’s also one of the most essential. Read on to find out about five simple tricks that will make preparing taxes easier for any small business owner.
1. Consult a Professional
Entrepreneurs shouldn’t assume that in order to be successful, they have to master every facet of business management. When it comes to taxes, it’s usually best to hire a professional. In most cases, the investment in professional Tax Preparation will pay for itself by allowing business owners to take full advantage of all available tax breaks and credits, so there’s really no downside to taking this route.
2. Keep Up With Deadlines
American workers only need to file taxes once per year by April 15. Business owners, on the other hand, usually need to pay quarterly taxes, and most of them also need to file additional paperwork for W-2 employees or 1099 contractors.
Write all the deadlines on a calendar or establish another system for keeping track of important dates. Missing deadlines can lead to unnecessary expenses like late filing penalties.
3. Separate Business From Personal Expenses
Many entrepreneurs choose to keep their personal and business expenses together, but that’s a mistake. Separating the two will dramatically simplify the process of preparing taxes.
It’s best to keep a separate bank account and take out a business line of credit. Business owners who manage all their expenses from one account can wind up forgetting to write off deductible expenses or accidentally deducting expenses used for personal purchases.
4. Simplify Expense Tracking
Speaking of deductible expenses, now is the time to consider developing a system that will simplify expense tracking. There are plenty of apps out there designed just for business owners that can help with keeping track of expenses and make it easier to file come tax season. Any entrepreneur who is still storing receipts and going through them by hand should invest in expense tracking software and write off the cost of the subscription as a business expense.
5. Budget for Quarterly Payments
Even though businesses only need to pay taxes on a quarterly basis, business owners should still put money aside for paying taxes every month. Estimates of how much money business owners should set aside each month vary, but most professionals suggest putting aside 25 to 35% of the company’s income each month to make sure the taxes will get paid on time. Though every business owner should take this advice to heart, it’s especially relevant to new entrepreneurs whose companies may still be generating sporadic income.
Take advantage of online tools
Governments around the world are shifting all their taxation operations online. The advantages are numerous for the individual small business as well as for the governments. For example, here are a few benefits of doing your VAT registration online:
- Convenience: Online VAT registration allows for quick and easy application, saving time and effort compared to traditional methods.
- Accuracy: Electronic filing reduces the risk of errors and inaccuracies in the submitted information.
- Real-time updates: Online portals provide real-time updates on the status of applications, eliminating the need to follow up on paper-based submissions.
- Secure: Online VAT registration is generally more secure than traditional methods and reduces the risk of sensitive information falling into the wrong hands.
- Environmentally friendly: Online VAT registration helps to reduce paper waste and is a more environmentally friendly option.
The Bottom Line
Preparing business taxes is more complicated than filing a regular tax return. It’s always worth hiring a tax professional to help with preparation, but business owners also need to follow the advice above throughout the year if they want to avoid unnecessary headaches and potentially steep late payment penalties. When in doubt about what’s considered a deductible expense, when to make payments to get ahead of deadlines, or how to structure a business to maximize tax incentives, consult a lawyer or a tax expert before making decisions that could impact the company’s bottom line.