5 tips to make tax time easier as a small business owner
Tax time doesn’t have to be a headache for small business owners. There are a variety of tools and resources available to help make it easier (and faster) to organize and prepare your tax returns. Set yourself up for success with these 5 essential tips to better manage your finances and taxes.
1. Automate your bookkeeping
Automating bookkeeping is a proactive approach for small business owners who seek efficiency, accuracy, and actionable financial insights. Solutions like QuickBooks® or other software help you:
- Save time. Manual entry is tedious and time-consuming. Automated systems can directly import transactions from bank accounts, credit cards, and other sources.
- Save money. Over time, an investment in an automated process and be more cost effective than hiring additional people or correcting manual errors.
- Improve accuracy. Automated bookkeeping reduces human error. Consistent categorization of transactions becomes seamless and makes it easier to prepare financial reports.
With your financial records all in one place and up to date, you’re better positioned to maximize your refund, while avoiding penalties associated with incorrect or incomplete tax returns.
2. Open separate bank accounts for your business
The line between business and personal expenses can sometimes blur. But creating separate bank accounts will help you claim legitimate deductions on your tax return–and support those claims in case of an audit. Advantages include:
- Streamlined accounting. Separating your business and personal finances may help you maintain a clearer picture of your company’s cash flow and financial health apart vs. your personal assets and liabilities.
- Greater legal protection. Keeping your business and personal accounts separated not only gives you added protection in a lawsuit but makes it easier to file accurate returns.
- Better financing opportunities. When your business needs a loan for buying inventory or supplies, lenders will be able to focus on your business without the complication of comingled income and expenses.
3. Capture all your business expenses
Surprisingly, some small businesses report less than half of the expenses they're entitled to. Overlooking the importance of detailed receipt management can result in lost tax deductions—money that could be funneled back into growing your business.
- Leverage technology. Use a mobile app or program that can help conveniently capture receipts, monitor travel mileage, and generate expense overviews.
- Gain insights into your business. Detailed tracking of expenses gives you a snapshot of your cash flow and helps you identify areas for cost savings.
- Stay compliant. Keeping accurate records is often required by law or regulations. Proper documentation can help you avoid penalties and provide proof of legitimate deductions.
4. Learn about qualifying tax deductions
New owners often just aren’t aware of all the small-business tax deductions available to them. Whether your business is a sole proprietorship, limited partnership, LLC, or C-corp/ S-corp, you may be eligible for a wide range of deductions. For example:
- Startup and organizational costs. Deductions for capital expenses typically occur over several years. This is known as amortization, and helps businesses accurately assess profitability year over year.
- Inventory. Some inventory-based businesses will manufacture products or purchase them for resale. If this is your business model, you can deduct the cost of your inventory, or the cost of the goods you sell.
- Utilities. Any utilities that you use for your business are fully deductible. This includes things like water, electricity, trash and cellular or telephone bills.
5. Consider hiring a tax professional
Hiring an experienced tax professional can be highly beneficial for a small business for variety of reasons:
- Tax Code Expertise. A tax professional stays updated with the latest changes in tax regulations ensuring your business takes advantage of all available deductions and credits, while remaining compliant.
- Save Time. Save Money. Preparing taxes can be time-consuming. By outsourcing this important task, business owners can focus on core operations and growing their enterprise.
- Minimize Errors. Mistakes in tax filings can result in penalties, audits, or lost deductions. A tax professional reduces the likelihood of these mistakes.
Successful small businesses operate with the mindset that taxes play a critical role keeping your business profitable. Use these five tips to navigate the tax landscape effectively, optimizing deductions, ensuring compliance, and focusing on your business growth and profitability.
