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Finance & Accounting, Financial Management, Taxes

Timely Tax Tips From Successful Small Business Owners

As you begin your entrepreneurial journey, nobody can expect you to become an overnight tax expert. At the same time, you probably know that taxes can have a huge impact on your bottom line. In turn, the way that you conduct tax planning can greatly reduce or increase your bill. Hopefully, these tips from successful small business owners can help you save time, money and stress.

Successful Tax-Planning Tactics

  1. Start Using Good Accounting Software Right Away to Keep Records

Even if you’re not a tax pro, good accounting software can help you keep track of your business. When your business first starts out, you probably don’t have any business processes implemented for record keeping. Good software will guide you along the right path. You might choose an internet-based system to avoid having to worry about backups, security, installation or maintenance.

Don’t want to keep your own books? Some software works almost automatically with other business software to save you time and reduce errors. Of course, you can also choose to use a bookkeeper or accountant to help you. If you’re not ready to hire that kind of employee, you can rely upon third-party services with experience in small business accounting.

  1. Consider Taxes When You Manage Cash Flow and Funding

Naturally, you must consider tax payments as part of your cash flow. However, you should consider some financing options and the way they will impact your taxes. If you decide to borrow money, you may be able to deduct interest and fees as a business expense.

For example, the true cost of a line of credit might be less than the fees if you can deduct them as an expense. You can also use access to that kind of funding to ensure you have plenty of money to pay taxes, handle normal operating expenses and invest in growth. When you know you can obtain funding, you probably won’t find paying your taxes such a burden.

  1. Keep Business and Personal Expenses Separate

When you’re first starting out in business, you probably will have to rely upon your own resources to some degree. Many entrepreneurs fund a portion of their new company out of their own pocket. Even so, it’s much better to establish a business bank account and business credit as soon as possible.

It might be tempting to pay for a business computer or trip with your own credit card or check. However, this makes it much more difficult to establish it as a true business expense and less likely that the bill will even find its way into your accounting records. Also, the sooner that you can establish business credit, the sooner you will be able to build your company’s credit score. Even lenders that don’t require credit scores may want to see evidence of your business checking account.

  1. Make Sure Tax Records All Reconcile with Each Other

The IRS has all sorts of automated systems that will eventually catch records that don’t reconcile. These will trip automated audits. If you get a 1099 for a certain amount, you want to be certain that’s the amount you report on your taxes. If the 1099 is wrong, you should work to get it corrected. You can’t expect the tax authorities to just accept your numbers over the ones on the form they receive.

Yes, the IRS will let you explain your case after a reconciliation error trips an audit. Of course, most business owners would rather just avoid an audit in the first place.

  1. File Even If You Can’t Pay

The IRS wants to collect their due; at the same time, you can usually work something out with them if you can’t pay by the due date. At least they know that you know that you owe them money. Just make sure that you communicate with them.

If you don’t file by the due date, you can expect harsher scrutiny and worse penalties. In the long run, you really can’t hide from the tax collectors. However, they’ll be more patient if you talk to them and explain the situation honestly. You can usually request an extension to file, but the extension doesn’t extend your payment date.

Don’t Forget to Manage Taxes

Successful tax management is critical for successful small businesses. If you don’t want to manage this important function yourself, consider hiring the right people to give you the help you need. Since tax professionals can also help you plan for future taxes, you shouldn’t wait until a few weeks before Tax Day. Instead, start out by planning to keep good records, considering the tax impact of expenses and filing correctly and on time.

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