Puzzled by taxes for your Small Business? I hear you. If you own a small business, tax time can be challenging. While taxes are rarely enjoyable or interesting topic, they’re a part of any business owner’s life.
Getting a handle on your business taxes can
- increase your income,
- minimize your tax liability while meeting the requirements of the IRS, and
- help you avoid legal issues.
Check out these tax tips that are helpful for any small business:
- Keep your tax and financial documents for at least 7 years. If you’re ever audited, you’ll need those records. Any claims made at tax time require supporting documentation. Keeping good records helps your business stay organized and comes in handy for audit purposes!
- Know your deadlines. It isn’t all about April 15th. While most business entities can wait until “tax day,” S-Corporations and Partnerships must file their annual tax return by the 15th of the third month after their tax year end. Thus, if their tax year end is December 31st, they must file their annual tax return by March 15th. If the deadline falls on a weekend or a holiday, the tax return deadline becomes the next business day.
- Understand your loans. The IRS doesn’t classify most business loans as income. But the interest paid on loans is generally a deductible expense. It’s important to have records regarding the use of any loans. It might be for equipment or to finance some other activity.
- Know the different types of audits. There are several types of audits and some are more intimidating than others.
- Office audit: Generally, this is a simple audit. The business representative is requested to report to its local IRS office to resolve some discrepancy.
- Correspondence audit: The IRS asks the business to send in a document via mail or fax.
- Field audit: These tend to be very thorough audits and they are conducted at the place of business.
- Criminal investigation audit: This type of audit is done when the business tax payer is suspected of tax evasion. In this case, the business tax payer needs to consult a lawyer.
- Pay your quarterly tax bill. This is a common mistake. If you have an employer, your taxes are regularly taken out of your paycheck. If you’re self-employed, you’re required to make estimate tax payments each quarter. Failure to pay this can result in a significant tax penalty.
You might also end up with a bigger tax bill than you can handle in a single payment. Make a habit of setting aside a portion of your profit each month in anticipation of paying your quarterly taxes.
- Prepare early. The vast number of tax filers wait until the last minute. If you’re expecting a refund, this can be the worst time to file. The IRS is overwhelmed with all the tax returns that pour in. However, early tax preparation may help avoid an audit. Preparing your tax return early leaves you time to find any missing documents and answer any questions.
- Get help. Depending on the complexity of your business’s finances, hiring an expert to prepare your tax return might be a good idea. In theory, the money you spend ought to result in a smaller tax burden. It’s also helpful to have an expert on your side if any legal issues arise.
- Avoid using taxes collected from employee payroll to pay business expenses. This common practice upsets the IRS greatly. When you withhold taxes, send them to the IRS!
Taxes are a large expense for any business that shows a profit. It only makes sense to minimize that expense. Consult a tax professional if you have any questions or concerns regarding your business’s tax situation.