Guest Post by Madison Crader
In an age where the general public rarely agrees about anything of importance, our mutual dislike of taxes is one of the few things we still have in common. And though it’s nice to share something, I think we can all agree that where taxes are concerned, less is more!
We can’t make your taxes disappear, but we can offer a few valuable tax tips. Some are long-term strategies that affect your finances all year long, and others are simple tricks for when you sit down to file taxes. While these tips apply to personal taxes as well, they should be especially helpful if you’re wondering how to file taxes as a small business owner.
Having thorough, organized financial records is the best way to reduce tax-related stress. Obviously, this is a year-round effort, and it isn’t easy — racking expenses, saving receipts from business purchases, monitoring company assets. It’s a lot of work, but it’ll improve your strategies, boost your bottom line, and make tax prep a breeze.
If you’ve got a good handle on bookkeeping basics, you can do it yourself with QuickBooks, Wave, or similar software. Some business owners hire freelance or contract workers for their accounting or invoicing. Alternatively, a good accountant can help you catch up on financial backlog or offer more permanent help going forward. However you decide to do it, quality bookkeeping is a necessity.
This is doubly important, since it affects your business taxes and your employees’ personal taxes as well. Before sending out W2s, 1099s or anything else, verify the correct spelling, address, and Social Security number of each employee. Obviously, we’d hope this information is already accurate, but it’s still good to double check before sending out sensitive financial information.
Another factor to consider is employee classification. If you’ve hired any new workers during the year, now is a good time to ensure you’ve classified them correctly. The federal government maintains guidelines for full-time, part-time, and freelance/contract workers, regardless of the contract you create yourself. In fact, incorrect classification could lead to an audit and substantial fines, so it’s worth some extra attention.
Every year, I sit down to do taxes only to discover that I’ve left one of my vital forms inside a book or under a stack of mail. You can skip that minor heart-attack by creating a designated space for tax documents and placing forms there as soon as you receive them. Some of your information will be better accessed in various software, such as your inventory management system, payroll records, or accounting software.
Block out some time to extract the details you need. This includes a review of your finances, such as a cash flow statement, balance sheet, and an income statement. You’ll need mileage records for any business vehicles and a summary of your assets. Additionally, you’ll receive a form 1098 with the mortgage information for your workspace, whether that be an office or a section of your home.
Some of those documents are prepared for you, like the 1098, but others require your input. Your accounting software may provide tax-friendly reports of your cash flow and income, and your inventory management software can help summarize your assets. If you don’t use comprehensive software, you may need to create these reports yourself.
To draft your own income statement, you’ll need to know your revenue, expenditures, gross profit, operating expenses, and a few other details. You’ll report your own salary and that of your employees. Likewise, preparing a cash flow statement will require more details about your daily sales and spending, your investment purchases, or business loan activity.
Obviously, you can choose to skip this step if you’re set on doing it yourself, but it doesn’t hurt to consider the pros and cons of preparation your own taxes, using tax software, or hiring a tax consultant. Especially if you’re filing small business taxes for the first time, hiring a professional is a smart idea. They’ll know how to file taxes for a small business owner like you, and can answer a lot of basic questions, such as “What percentage does a small business pay in taxes?” and more.
If you do choose to hire professional help, keep in mind that not all accountants are tax-certified. An accountant can offer help, and may be cheaper than a CPA, but remember that only Certified Professional Accountants who have passed an extra exam can sign your tax documents and represent you in case of an audit.
After all your careful preparation, it’s a relief to submit those taxes and check it off your list. Yearly taxes are due by April 15, but it doesn’t hurt to plan for an earlier date. You never know what might come up as you’re wading through forms and financial records!
And don’t forget — if you’re doing any kind of freelance or self-employed work, you’ll pay estimated taxes each quarter on January 15, April 15, June 15, and September 15. Once you’ve had a year under your belt to assess how much to pay in taxes each year, simply divide that number by four and pay that portion each quarter. As expected, the IRS will fine you if you don’t. The good news is that they make it easy to do with an online direct pay system.
Whether it’s your first time filing small business taxes or it’s just been a long year, these reminders should help ease your tax-related stress. With some good bookkeeping, accurate employee and financial records, and support from software and CPAs, you can file in record time and move on to the business tasks you like best.
Madison Crader specializes in content related to small businesses building brand awareness and gaining access to capital to grow their business. She has a passion for helping entrepreneurs understand their financial needs and set long-term goals by sharing tips and tricks.
August 17th, 2022
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