It is difficult enough to run a business without increasing the complexity of filing annual taxes. According to experts, it is essential to work with an accountant throughout the year, not just when preparing a tax return. Making financial decisions without consulting an accountant or financial adviser can be at risk and cost more in the long run.
Here are some of the tips for small business taxes:
- Hire the right accountant
Accountants offer more than just preparing financial statements and paying taxes. If that`s all they propose to do, then they aren`t the right accountant for a small business.
- Keeping good records
Keeping a thorough and accurate record throughout the year will ensure your tax return is correct. Poor records management, according to Blake, can leave deductions on the table and, worse, risk audits. Blake encourages all companies to invest in a base version of their accounting software because it is easy to use, cheap, and helps track all income and expenses.
- Understanding the difference between net profit and gross profit
If your product produces more money than you charge for it, you lose money no matter how many units you sell. Small business owners tend to forget to explain the difference between net income and total income.
For example, if a product costs $ 100 and you sell it for $ 150, your total revenue will be $ 50. But your net income may drop to $ 10 after you deduct your costs. “It’s important to know what your gross and net profits are so that you can make more money and grow your business.”
- Correctly classify companies
If you don’t classify your business correctly, it can be overwhelming. Deciding whether to organize your business as a C Corporation, S Corporation, Limited Partnership, Limited Liability Company, Single Member LLC, or Only Owner will have a different impact on your taxes. SMEs need to consult with lawyers and accountants to determine how their business should be categorized.
It is recommended to hire or outsource a company to handle your salary, but make sure the company has a good reputation. Some employers hire a lesser-known payroll service to save money but later found that the service did not collect the company’s payroll tax. When that happens, the employer is on a payroll hook. The IRS typically checks quarterly to see if payroll tax has been paid.
A good accountant will advise you on how to grow your business. With their advice, decide how much you should put into your retirement savings and whether you should take a bonus or postpone it for a year. Your accountant can tell you to save money by buying a small space for your store or business instead of renting it.