As a business owner, taxes are likely never too far from your mind, no matter what time of year it is. While preparing and filing your individual taxes is a fairly straightforward process, if you’re new to business ownership, there are important things you should know about the tax process.
One of the best things you can do if you’re not sure how business taxes work is to work with a professional. They can help you to avoid some common mistakes such as underreporting or poor record-keeping. If you’re working with cryptocurrency in your business, a tax preparer can also help you to make sure you’re taking the proper steps when it comes to deductions and how much you owe.
But, there are always things you can do for yourself to make the tax process easier. For example, if you’re dealing with cryptocurrency, you can utilize a Crypto Tax Calculator to minimize your tax liability. If you’re not sure when certain forms are due, you can peruse the IRS website to view their tax calendar.
That’s just the tip of the iceberg when it comes to tax hacks that can make filing and preparing easier for your business this year, and in the future. With that in mind, let’s cover a few of those useful hacks that can save you time, money, and a lot of stress.
- Use a Tax Filing Software
Many business owners make the mistake of assuming that tax filing software is only for small businesses. While it’s true that software like TurboTax or TaxSlayer can make small business taxes a breeze, they can also be used for larger operations. Even if you feel like you’re savvy with your taxes, these programs can help to ensure that you don’t miss anything important. Consider it a “shield” to protect yourself from any inaccuracies as you file. It’s a small investment that could make a big difference.
- Keep Your Receipts Organized
This might seem like tax basics 101, but it can be difficult to keep track of each and every receipt from your business’ expenses, especially if you allow employees to purchase things, fill out expense reports, etc.
So, don’t be afraid to make it easier on yourself. Utilize technology to keep track of all of your business’ receipts. Apps like 1tap receipts make it easy to store your data in one place, and syncs with most tax filing software. There are other apps and software programs on the market that do similar things, so shop around to find the one that best fits the needs of your business. Keeping track of all of your receipts is one of the easiest ways to write off your expenses. Losing some of them or having incomplete data is like missing out on retrieving some of your money.
- Deduct Your Car and Home Office (If Applicable)
If you run your business from home, or sometimes work remotely, you might be able to deduct your home office or car expenses. When it comes to the things you can deduct from your home, the items could include:
- Mortgage payments (interest)
- Utility bills
Of course, you’ll only be allowed to include your home office if it is actually an office space. If you occasionally work from home and that includes sitting on your living room couch with your laptop, that isn’t going to be a viable option for a deduction.
Additionally, if you do any type of traveling for work, you may be able to deduct certain car expenses. Start by calculating how much of your time in the car is used for your business. You can then deduct mileage based on the IRS’ mileage rate, or choose to deduct all of your car expenses including gas and repairs. It can take some time to figure out the best financial choice, but either way, you’ll be saving more than you would have if you didn’t include your car at all.
- Work With Freelancers
The gig economy is growing at a rapid pace, with millions of contractors and gig workers in the U.S., alone. These are individuals who are typically great at what they do, because they have one main focus. You can hire a freelancer for anything from graphic design to content writing.
By working with freelancers and contractors on a regular basis, you can actually save your business money upfront, and when it comes to tax time.
When you hire full-time employees, you’re paying them much more than a basic salary. You also have to take care of things like Social Security expenses, and other expenses and fees that are related to payroll taxes. While some full-time employees are needed for any successful business, don’t bite off more than you can chew when it comes to hiring. In other words, don’t hire more than you need! Instead, consider bringing on contract workers or freelancers for individual jobs as needed.
- Think About Retirement Today
You might be wondering what your own personal retirement fund has to do with your business, but they’re more connected than you think. There are different types of retirement accounts to consider, each with different benefits and drawbacks, so choosing the one that best fits your needs is important.
For example, putting money into a 401(k) or traditional IRA will make those contributions deductible on your taxes. But, you’ll have to pay taxes in retirement when you withdraw that money. Alternatively, a Roth account is taxable now, but you won’t have to pay taxes when you take the money out during retirement.
If you do decide to invest in your retirement, the type of account you choose will likely depend on whether you can afford to pay taxes on that money now and enjoy your benefits in full later, or vice versa. So, consider your current financial situation before deciding on the right account.
- Make Estimated Payments Throughout the Year
You’ll avoid a lot of headaches and you’re more likely to stay organized if you make estimated tax payments throughout the year, rather than waiting on tax day to arrive.
In order to make the right payments, you’ll have to consider how much you owe in self-employment taxes; both federal and state. Your payments might not be the exact amount of what you actually owe, which is why they’re considered ‘estimates’. The goal is to get as close to the accurate amount as possible.
After tax day rolls around and the government adds up everything you’ve owed throughout the year, you might have to make an additional payment to make up for anything your estimates didn’t cover, or you may receive a refund.
Paying throughout the year will help you to manage cash flow within your business since you don’t have to worry about a big lump sum of money disappearing from the account. It can also reduce your risk of penalties since it’s less likely that you will underpay.
- Include Your Equipment
If you have had to purchase any equipment for your business in the last year (including office equipment, machinery, etc.), those are considered business expenses, and using them as write-offs in your taxes can save your business thousands of dollars.
There are certain forms you’ll have to become familiar with in order to know which type of equipment you can write off, as well as how to count something as a “loss” (a piece of old equipment that you got rid of or replaced). The IRS tax laws, Section 179, should be a “must-read” for any small business owner. It will tell you everything you need to know about writing off equipment whether you’re purchasing a lot for a new business or modernizing old supplies with new ones.
Bonus: Use a Professional
For a business owner, there is no greater satisfaction than to see your business grow, thrive, and find success. But, chances are you got into the business world because you had a passion for a very specific thing. Maybe you had a great idea for a product that no one else had come up with. Maybe you’re a marketing guru, or have a wealth of business knowledge. Or, maybe you just like working with people.
Whatever the case, very few people start with own business with a lot of tax knowledge already in place. There are plenty of things you can do to change that, including taking accounting classes.
But, if you don’t want to go through the trouble of learning tax codes yourself, it never hurts to work with a professional, at least until you get your feet wet in the business world and have a better understanding of what your taxes look like each year. A certified CPA will give you an upper hand in your business and will help you to compete with larger corporations. So, while you might be used to being in charge, it never hurts to ask for help in areas of unfamiliarity. Accountants and CPAs can make your tax experience a much easier, smoother process.