As a small business owner, you may have delayed filing your U.S. taxes until October 17. Well, this deadline extension is coming up soon and beyond that, your 2022 taxes are due in another six months. This shouldn’t be too much of a concern if you’re maintaining records effectively and checking out your accounting software daily. We chatted with experts on their top recommendations to help you meet the extended deadline coming up. Jaclyn Strauss, CPA says it well here, “This is your opportunity to take action on the words you mumble under your breath and implement good habits year-round.”
Stay Organized Throughout the Year
Staying organized is crucial for small businesses to manage their taxes efficiently and avoid potential legal and financial issues. To stay on top of your small business taxes, it’s important to implement effective organizational strategies.
Firstly, small business owners must keep track of all expenses and maintain accurate records to help them file their taxes accurately. This means keeping track of all receipts and invoices, categorizing expenses and income, and updating financial statements regularly. Accurate bookkeeping is essential for minimizing tax liability, and it can also help identify tax deductions and credits that you may be eligible for.
In addition, using specialized tax software can help streamline the small business tax preparation process. This software can help maximize deductions and credits, keep track of deadlines, and minimize tax liability. Using tax software can also make it easier to generate financial reports, which can help small business owners make informed decisions about their business operations.
Planning ahead for tax deadlines is also crucial to staying organized with small business taxes. Small business owners should know when their taxes are due, keep track of any tax law changes, and ensure that they have all necessary documents and information ready for filing. By planning ahead, small business owners can avoid last-minute stress and ensure accurate and timely filing.
By implementing these strategies, small business owners can stay organized throughout the year, minimize tax liability, and set themselves up for long-term success. Staying on top of small business taxes requires accurate record-keeping, specialized tax software, planning ahead for deadlines, and consulting with tax professionals to ensure compliance with tax laws and regulations.
Know Your Deductions
To minimize small business taxes and maximize profits, small business owners must know all the tax deductions they are eligible for. By identifying all available deductions, small business owners can reduce their taxable income, lower their tax bills, and save money.
One common small business deduction is the home office deduction. If you work from home, you may be eligible to deduct a portion of your home expenses, such as mortgage or rent payments, utilities, and maintenance costs. To claim this deduction, you must have a designated space in your home that is used exclusively for business purposes.
Another common small business deduction is the business vehicle deduction. If you use your vehicle for business purposes, you can deduct expenses such as gas, oil changes, and repairs. You can also deduct depreciation on your vehicle.
Small business owners can also deduct expenses related to advertising and marketing, such as website design and advertising campaigns. Office expenses, such as rent, utilities, and office supplies, are also deductible.
Additionally, you may be eligible for deductions related to travel and entertainment expenses, including airfare, hotels, meals, and entertainment expenses that are directly related to your business.
It’s essential to keep accurate records of all business expenses to claim all available deductions. This includes keeping receipts, invoices, and bank statements, and documenting the purpose of each expense.
Update Accounting Software Every Single Day
Strauss says it’s important to update your accounting software daily. Generally, people will advise you to do it weekly, and for a small business just once a month. However, if you look at your accounting software as being important enough to check your emails, you’ll alleviate problems in the future. You can itemize your transactions quickly and the benefit is that you’ll have greater clarity, remembering the most recent transactions off the top of your head. This is going to alleviate a lot of tax stress. Strauss suggests this,
“While you’re in QuickBooks, Xero, or whatever program you use, “also check your profit-and-loss statement and any unpaid invoices.”
There are further benefits as well to looking at your accounting software daily. Through consistent focus, you’ll have a deeper knowledge of how your business is doing financially. There won’t be any surprises that you’ve overspent or underearned. With this daily knowledge, you may change spending habits or perform better to gain more sales. You’re going to do a better job with expenses as well. Maintaining your software is going to allow you to be more correct in your bookkeeping.
Collect Extensive Records of Transactions
It’s not just about capturing the transactions into your accounting software, you’re also going to want to know what the transaction was for. You can write off certain expenses that have accumulated throughout the year. If you travel a lot or have driven your car locally often for business, you can get tax credits for this if you have collected the records properly. If you haven’t named what the expenditure is or you didn’t mark down essential information, you won’t be getting that tax credit. You’ll need to provide the amount, place, and date for your spending.
This is another benefit of doing a few minutes of accounting daily. If you are going to add expenses, you want as much detail as possible. We suggest that when you’re putting things down in your transactions section you use the memo area to write down the details of the transaction itself. If you do daily accounting, you can skip the next extension. It’s important to note that when you file an extension, it extends the time on paying. This isn’t true. April 15 is Tax Day in the US and after that day, interest and penalties start to incur. If you are requesting an extension, you should also include a payment.
Plan Your Taxes
It’s extremely stressful to try to get through your yearly accounting in a short period of time. If you complete your taxes just before the cutoff and have a massive tax bill, you don’t have time to do anything to negate it. If you keep track of your finances and accounting throughout the year, you can do things to ensure your taxes are lower. Maybe this means buying an automobile for your business or pricy computer equipment that you needed anyway. When you only look at your taxes just before they’re due, you don’t have any strategies like this to work off of. You’re simply stuck paying that large tax bill.
There’s a recommendation to meet with a tax expert. You want to have an overall, steadfast plan for your taxes. It’s also important to talk about your business structure. For example, should you be an LLC or an S Corporation? How do you maintain your accounting? Do you capitalize on your inventory efficiently? Do you know how to take advantage of the incentives that are available to you? Things like tax credits for various things like maintaining employees and contributing to green energy. What is your retirement plan usage now? These are all the fine details you’ll want to have recorded in alliance with your tax expert. Getting help from a professional, it could make April 18, 2023, a far less daunting experience for you.
Bonus: Hire a Professional
While it’s possible to manage your small business taxes on your own, hiring a professional can be an excellent way to ensure that you’re doing everything correctly and efficiently.
A tax professional can help you identify all available tax deductions and credits, reduce your tax liability, and avoid potential legal and financial issues. They can also help you stay up-to-date with the latest tax laws and regulations, ensuring that you comply with all applicable laws.
Additionally, a tax professional can provide guidance on complex tax laws and help you make informed decisions about your business operations. They can help you choose the best entity type for your business, develop a tax planning strategy, and identify ways to minimize your tax liability.
By hiring a tax professional, you can also save time and reduce stress. Instead of spending countless hours researching tax laws and regulations, you can focus on running your business and let the professional take care of your tax preparation and filing.
Overall, hiring a tax professional can be an excellent investment for small business owners. By taking advantage of their expertise and guidance, you can minimize your tax liability, avoid potential legal and financial issues, and set your business up for long-term success.