06 Mar Tax Saving Tips for Small Businesses
Small business owners may find tax season as one of the more stressful times of the year because there always seems to be last minute rush to process the necessary business tax obligations. Perhaps by following some tax saving tips, preparing tax returns need not be such a dreaded chore.
Apply payroll tax software and avoid those costly IRS penalties
Forty percent of businesses handle payroll on their own by writing these down on paper or spreadsheets without outside help. This translates into a third of these companies getting fined for the incorrect handling of such payroll taxes.
There are payroll tax programs that take out all the guesswork. With U.S. based customer support, you will have the guidance to calculate, deposit, and file payroll taxes in the correct manner. One of the best accounting and bookkeeping software is Quickbooks for small business.
Separate business from personal finances
As much as possible, do not mix up what you spend for the business and what you use for personal consumption. Make a separate business checking account and credit card account to properly track these business expenses.Properly organized documents can help monitor your expenditures and provide legitimacy for such in case of an IRS audit.
Get more organized with a filing system
When your financial documents are all over the place, that normally sends you into a panic. Free yourself from chaos with these filing hacks:
Place all your important papers for filing in one area
Mark 12 folders to connote a particular month in a calendar year. Whatever receipts, deposit slips, ATM withdrawal slips, and the like come in should be placed in the designated folder of that month.
Dedicate a couple of hours within each month to sort out your papers
Carve out that precious time to make sure your ledger is in order. That can only happen if you consistently record the correct amounts based on receipts collected. There’s no need to be overwhelmed by a whole year if you break it down to 12 months. So, reconcile your bank and credit card accounts so the receipts match the statements. Be pleasantly surprised that you’re finally getting yourself organized.
Look into using accounting software to properly track your revenue streams and expenses
With the proper software setup, small business tax preparation can be made easier where deductions can be optimally tracked. When the program has been inputted with the correct amounts stating business revenues and expenses, generating financial statements can be a mouse click away. This can be forwarded to a CPA or a tax professional so the tax return can be filed straight away.
Check out how auto expense deductions can work in your favor
Vehicles used for businesses can be included for tax deductions. There are two examples presented here:
The Standard Mileage Rate
The formula for this method is multiplying the total number of miles driven for business by the standard mileage rate for the year. The 2017 tax year’s standard mileage rate was 53.5 cents per mile.
Determining Actual Car Expenses
Gas, repairs, and insurance can be considered deductions for actual car expenses. If you’re using your car for both personal and business activities, the percentage for business use needs to be calculated.
Let’s say, a total of 15,000 miles was logged in. Through a mileage tracker, 6,000 miles were consumed for business purposes. Divide the 6,000 over 15,000 to come up with 40%. The business deduction can be as much as 40% for total car expenses.
Business-related meals can be considered for deductions
Meals that were part of your business transactions can have a deduction of 50%. Consider this a representation expense when going on a lunch or dinner meeting with your potential clients. Treating out your staff for pizza can also be considered. Don’t go overboard, of course.
How you would spend frugally for personal concerns should also be applied for your business meals. Lay off the fancy gourmet courses or stay away from getting in 18 holes at the country club just because you can write off half the cost. But, if you’re good to spend on that high-class stuff in a personal capacity, then the deduction should be justifiable.
Consider hiring independent contractors instead of employees
Employees have payroll taxes plus other benefits aside from their regular wages. Businesses that are just starting out might not be able to afford this. With independent contractors, no benefits or payroll taxes needed.
Please be aware of the differences between an employee and an independent contractor. You could face penalties if the independent contractor meets the legal definition for an employee.
All contractors must complete a W9 form. By the end of the year, you will have all the necessary details on hand to provide a 1099 tax form
There may be some benefits with a retirement plan
Several tax benefits from a retirement plan may prove to be a welcome blessing for you, your business, and your employees. Let’s take a look at a few of the benefits:
- Employer contributions are tax-deductible
- Assets in the plan grow tax-free
- Retention of better employees and attracting highly qualified staff becomes more probable
Remember to always file your taxes on time
There are penalties for late filing that can be quite costly.
Two hundred five dollars is the minimum penalty for certain tax returns filed 60 days late or more. Less than $205 owed means that the penalty is 100% of the unpaid tax. The penalty can grow to as much as 5% of your unpaid taxes every month up to a maximum of 25%. All this for not filing on time.
Based on the amount of tax you owe, if you do not pay on time, it will continue to accrue until the tax bill amount is fully settled.
File your tax return even if the funds are unavailable to settle this. You avoid the penalty for failure to file a tax return at that moment. Eligibility for relief from several penalties is possible. By using an online tool, you can find a way to appeal a penalty.
By following these tips, business tax preparation should become more manageable.