Doing taxes as a small business can be daunting. Here are some helpful hints.
Running a business can be daunting enough without having to contend with filing taxes each year. Experts advise that to minimize this stress, you should collaborate with your accountant throughout the entire year – not just when preparing tax returns. At HBC Tax & Accounting, Inc, we take a comprehensive approach to client services. Our solutions cover every facet of your financial life so you can focus on what matters most: finding an easy method for managing finances so you can focus on what matters most!
Here are the best guidelines for small-scale businesses when it comes to tax preparation, small business accounting and consulting with an accountant or financial professional.
Find the Best Accountant
Your accountant should be working alongside you throughout the year to monitor money earned and spent, prevent cash flow issues, and keep track of net and gross earnings. Meet with them as soon as possible after starting your company, not just during tax season in March/April. “Most small-sized businesses underestimate how essential accounting is to their company’s growth and success,” according to one accountant.
Be certain that all income is not reported to the IRS.
The IRS requests a copy of any 1099-MISC forms you receive to compare them against the amount reported and what information they have about what income you received. Blake emphasizes that it’s essential that the income declared to them corresponds to that reported on your 1099 forms; otherwise, any discrepancy could indicate an issue for them. Even if your client fails to send out the 1099 form, however, you still must report the income received.
Maintain an accurate log of your activities.
Maintaining accurate and thorough reports throughout the year is key for ensuring the accuracy of your tax return. Every business should invest in at least the basic version of an accounting software as it’s user friendly, affordable, and allows you to keep track of earnings and expenses with ease.
Maintain a distinct line between personal and business expenses
If the IRS examines your business and finds personal expenses mixed in with business costs regardless of whether or not they were reported timely, they may begin investigating personal accounts for possible violations due to this commingling of funds. To protect yourself from this scrutiny, always have a separate bank or credit card for running your company that you use solely for business transactions in those accounts.
Understand the distinction between gross and net income
If your product costs more to make than what it sells for, regardless of how many units are sold, then you will lose money – regardless of how many pieces are being sold. Small business owners often fail to account for the disparity between gross and net earnings when selling items. For instance, if it costs $100 to produce your item and then costs $150, gross income would be $50; however, after deducting costs your net profit could only be around 10 dollars after deductions have been taken into account. It is essential that you understand these figures in order to become more profitable and expand the size of your business venture.
Make sure to classify your business accurately.
Failure to correctly classify your company could result in tax overpayments. Determining whether to classify as a C Corporation, S Corporation, Limited Liability Partnership, Limited Liability Company, Single Member LLC or Sole Proprietor will have an effect on how much tax you owe. Small businesses should consult with an accountant and attorney regarding the best classification method for their operations.
Employing a payroll service can be beneficial, but be sure that it’s reliable. Businesses may try to save money by employing less well-known payroll providers – only to discover they weren’t paying taxes to the business. As owners of the business, you are ultimately accountable for paying any applicable payroll taxes; typically, the IRS checks every quarter to confirm if these taxes have been made.
Consult your accountant for guidance on developing your business plan.
A good accountant can offer helpful suggestions on how to expand your business. Ask them for their opinion on contributing the correct amount to your retirement account, as well as whether taking the bonus now or waiting a year makes more financial sense. Furthermore, your accountant can advise you whether purchasing rather than renting space for your office or shop could save money in the long run.