Many Americans prefer sitting next to a crying baby during a flight, staying at the airport, or having dental procedures to prepare tax returns. Tax filing isn’t easy, but it is a necessary evil for us.
The situation gets more complicated if you’re running a business. According to Statista, taxes are the third-most important matter for entrepreneurs and small business owners.
The only way to prevent stress during tax season, manage your taxes and prepare ahead instead of waiting for the deadline. This article will walk you through how taxes can impact your small business and shares five tips to make your tax season stress free.
How Do Taxes Impact Your Small Business?
Whether you’re a small business or an entrepreneur, you need to file and pay taxes in America. According to Small Business Administration (SBA), small businesses and entrepreneurs pay around 19.8% in taxes.
While your business structure and state laws affect how much you’ll pay in taxes, they’re one of the major costs you must bear to run a business.
For small to medium-sized businesses and entrepreneurs, taxes are an administrative and financial burden that impacts their ability to invest in employees and business activities and makes it hard to compete at scale.
Business owners and entrepreneurs who file their tax returns late or inaccurately or don’t file at all can face fines and criminal prosecution (in extreme tax debt cases). Fortunately, calculating and filing small business taxes can be stress-free, provided you prepare in advance.
More: How the New Inflation Reduction Act Can Affect Your Taxes as an Entrepreneur with Jayden Doye
Now that you know how taxes can impact your business let’s learn how to prepare for 2022 taxes and make tax season less stressful.
5 Smart Tax Filing And Saving Tips For Your Small Business
Here are the five tax-filing tips to help manage and prepare business accounts year-round.
Keep Your Records Organized Year-Round
Keeping accurate and thorough records year-round will help you prepare for the tax season and ensure your tax filing and returns are correct. Inadequate records may cost you dearly, from IRS audits to overpaid taxes.
So, keep your sales records, invoices, business expense receipts, and other relevant documentation for costs or earnings. Maintain receipts for:
- Office Supplies
- Meal and entertainment expenses
- Travel costs
- Contractor and employee compensation
Close to tax season, gather all your personal and business information, such as last year’s returns and Federal Tax Identification Number (Employer Identification Number), for a seamless process.
Utilize Accounting Software
Still using online spreadsheets for your business to manage taxes? Although spreadsheets are beneficial, they pose numerous tax risks, such as fraud vulnerability and human error, that can easily make your tax filings inaccurate.
Wondering how to level up your taxation game and address these pain points? Use reliable accounting software or solution.
The market is full of advanced accounting software like Xero, Sage, Quickbooks, etc., that can save time, reduce errors, and create instant reports to help you know your finances correctly.
Identify Forms You Need For Tax Filing
Besides individual income tax returns (Form-1040), every Atlanta-based small business owner and entrepreneur must file additional forms based on their business type.
- Single-member LLCs and sole proprietors must file the “Schedule C” form with Form1040
- Partnerships use Schedule B-1 (Form 1065)
- C corporations use Form 1120 to file income taxes
- Form 1120-S is an S corporations tax return
In addition, you’ll need more forms to file tax returns if you have hired independent contractors (IRS Form 1099) or employees (IRS Form W2) and plan to claim a deduction for amortization and depreciation (IRS Form 4562).
Set Aside Money For Payroll Taxes
As entrepreneurs and small business owners who employ staff, you’re legally bound to withhold, pay and report employment taxes.
Here are a few types of employment taxes you must consider:
- Social security: 6.2% for employers and employees each, or 12.4% total
- Medicare: 1.45% for employers
- Federal tax: It varies based on personal expenses and salary range
Payroll applications such as Homebase and Gusto can help you manage and pay payroll taxes. With these apps, you can effortlessly see payroll timeframe, monitor staff’s working hours, remain compliant with various federal and state laws, and more within one centralized dashboard.
Use Different Sections For Tax Deductions
Many tax provisions are available to help deduct taxes for small businesses. Purchased quality, expensive equipment year-round?
You can reduce tax liability by using section 179 to deduct business expenses associated with depreciable assets like vehicles, equipment, or software.
Moreover, IRS allows small businesses to deduct 20% of their income by applying for section 199A (Qualified Business Income Deduction).
If all this worries you, hire a professional CPA to offload tax filing. This way, you can better prepare for your tax season and focus on your business.
Tax season can be increasingly stressful for entrepreneurs and small-business owners who prepare, pay, and file taxes.
Use these five killer tips to take the stress out of filing your small business taxes and saving some (possibly a lot) money back into your pockets.
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