The deadline to make your business taxes is approaching, but you still have time to take some measures to ensure a correct presentation. Here are 10 tips that will save you time and headaches when you decide it is time to pay your taxes this year. In addition, these simple actions can save you money and ensure you greater profitability. But the most important thing is that they will guarantee you that you comply with the regulations on the tax return in order to avoid any future complications or even an IRS audit. It is never too late to learn how to save time, money and problems when preparing your company’s taxes!
10 Tips to prepare your company’s taxes
Tip 1. Save your receipts and track your expenses
One of the biggest mistakes that small business owners make is not keeping up-to-date financial records, which also includes keeping all receipts related to your business expenses. Maintaining proper records and keeping track of your expenses are the first steps towards accurate tax filing.
As a business owner, you must be very diligent throughout the year when ordering, saving and classifying receipts for all types of transactions related to your company. Buying lunch for your employees, taxi rides, gasoline from your commercial vehicles and even the purchase of printer ink cartridges are all expenses that must be accounted for correctly. These small expenses don’t seem like much, but they accumulate quickly: the average owner of a small business generates hundreds, if not thousands of dollars, in small expenses over the course of the year.
Having your receipts in order when the time comes to do the taxes will save you time and maybe a lot of money. Does saving and filing your receipts seem like torture? Don’t worry: Gone are the times when you kept each piece of paper in a shoebox. Simply use an expense tracking application that does the work for you. Remember that the proper monitoring of your expenses also has other benefits: it will help you get to know your business better and can even help you decide if it is time to apply for a commercial loan.
Tip 2. Register your business
If you have not yet established the structure of your business or the legal entity under which you operate, do so as soon as possible. Maybe you are paying too much in taxes if you are considered an independent worker. The best solution is to establish your business entity. Doing so when the year begins is a sensible and economical strategy to save on taxes, as some states impose taxes and franchise fees at the beginning of the year. You can establish your business as a sole proprietor, as a corporation or as a limited liability company (LLC). You don’t know what is the best option for your business? Here you can know the differences between these 3 types of business structures.
Remember that legally structuring your company has other benefits: to apply for the majority of commercial loans you will be asked as one of the requirements to present the proof of registration of your company.
Tip 3. Know all your possible deductions
The bad news is that you have to pay taxes; The good news is that there are many tax deductions available for small business owners. You can significantly and legally reduce what you have to pay in taxes, but you should know these deductions and know how to use them to your advantage. This may be the key to a successful tax return.
You must ensure that all items that you declare as business expenses are in effect considered deductions. Some categories are clear: the office supplies, equipment, or software that you purchased during the tax year. They are deductions. A vehicle that you have bought for your family is clearly not. Other items are more complex, such as clothing: unless it is a uniform that you wear in the workplace or a type of protective clothing, the clothes or footwear you buy for work are not deductible.
Also, be careful with deductions that involve large amounts. You may think that it is a good idea to claim a large amount of deductions to reduce your tax liability, but the IRS is likely to call your tax return especially if these deductions exceed what is considered common. If you really have a large number of deductions that add up to a large amount of money, make sure you are as specific as possible and correctly label each deduction (and, again, make sure you keep the receipts that support these expenses!). The IRS carefully reviews deductions for alarm signals, so if you are unsure of what you can deduct and what you cannot, the best thing you can do is consult an accountant or tax preparer.
Tip 4. Separate your business expenses from your personal expenses
This is essential to keep an accurate record of the expenses that can be deducted from your taxes. The best way to keep your personal expenses and your company’s expenses divided is by opening separate bank accounts and using separate credit cards for everything. Use your common sense when using your pleasure”? It applies perfectly here: if you attend a seminar related to your industry, buy your plane ticket with your commercial credit card and use the receipt as a deduction on your taxes. But if you are going to have a beer with your seminar colleagues after the end of the course, simply pay with your personal credit card.
Once the time comes to file your taxes, be sure to separate your business expenses from your personal expenses. And remember that separating your business account from your personal account not only has advantages when filing your taxes: having a commercial bank account is one of the basic requirements to apply for a commercial loan, and it is also the first step in building your credit commercial and open your company to new opportunities.
Tip 5. Open a savings account for medical expenses through your business
The idea of getting a tax deduction through savings account for medical expenses may not have occurred to you. Any contribution to a health savings account is tax-deductible, and there is no specific limit on the amount of money you can contribute to the plan. The type of savings plan you choose, individual or family, will determine what percentage of the contribution is eligible to be considered a deduction. You can use the funds in your health savings account to pay for qualified medical expenses without taxes.
Tip 6. Buy a vehicle or make the most of your existing vehicle
Many business owners already know that the mileage you cover for business purposes is tax-deductible. But you may not know this: if you use a truck or commercial vehicle for your business, it is a good idea to buy one that weighs more than 6,000 pounds. The deduction for depreciation can be great tax savings, of course, depending on the cost of the vehicle itself and the percentage of use that you use for commercial purposes.
If buying a new van is not in your plans, make the most of fuel deductions and everything related to your vehicle. The federal government allows two different types of deductions related to your vehicle. The standard method allows 54 cents per commercial mile plus parking and tolls. The actual method adds up all expenses related to your vehicle (oil change, car insurance, gasoline, miles for car washes, and repairs). You must determine which of these two deduction plans will work best for your company. As always, keep all receipts related to your vehicle and use your commercial credit card for those expenses. Keep in mind that driving from home to work is not tax-deductible!
Tip 7. Classify your employees properly
If you misclassify your employees, the IRS may see this as a desperate attempt to avoid paying payroll taxes. Make sure you know the difference between independent or autonomous contractors (who can be tax-exempt) and employees. A mistake here could cost your company severe fines and late tax charges. The increase in this type of fraudulent behavior was observed after many employers chose to classify their employees as independent contractors in times of economic crisis, so you can be sure that the IRS will pay special attention to this point in your tax return .
Tip 8. Include your children and spouse on payroll
However, doing this is totally viable. Most small business owners do not realize that paying their children for the services provided in their company is a tax saving tool. For example, if your child is under 18 and you are a sole proprietor or have a single-member LLC, your company is not required to withhold payroll taxes. In addition, your child can use the standard deduction as part of the income you pay, since that sum is earned income and does not require income taxes.
You can also add your spouse on the payroll in the same way, but only do so if he or she wants to contribute money to your company’s 401 (k) for tax planning purposes. Otherwise, generating accrued income for your spouse and subjecting them to payroll taxes does not make sense, since that deduction will end in your joint return anyway.
Tip 9. Know your tax category
Tax categories refer to the portions of your income that correspond to a specific tax rate. For example, if you are single, the lowest 10% tax rate applies to the first $ 9,525 of your income (in 2018). The next part of your income is taxed at 12%, and so on, until you reach the maximum that the law provides. This progressive tax system ensures that all taxpayers pay the same rates at the same levels of taxable income. As a consequence, people with higher incomes pay higher taxes.
The more aware you are of your tax category, the more you can accelerate income from one year to another without placing yourself in a higher income category. The opposite of the acceleration of income from one year to another is the deceleration of income, with the purpose of maintaining a particular taxation. There are legalities related to the change of income from one year to another, so you should keep this in mind before proceeding. Maintaining a reasonable level of tax revenue is not impossible, but requires knowledge and practice.
Tip 10. Seek the advice of an accountant
If you still have questions about how to file your company’s taxes or do not feel safe preparing them yourself, simply choose to hire a certified public accountant or CPA (“Certified Public Accountant”). This is also the best option for those business owners who not only wish to file taxes, but also require accounting services throughout the year. A professional CPA can help you not only with the tax questions you have, but also with your doubts about the structure of your company, as well as providing guidance for managing your business finances. It is also the most suitable option for companies with a more complex structure, or simply for those business owners who wish to save time.
Take advantage of these 10 tax tips and strategies to get the most out of the tax season. Do you really want to benefit your business? Then, transform these tips into constant habits. By keeping your records organized and being proactive in everything related to taxes, you will not only reduce the stress and anxiety related to the tax season: you can also learn more about how your own business works and grow your business.