Running a business is not easy. From putting in the hard work to turn your dream into a lucrative opportunity to keeping up with all the rules and regulations, it’s easy to feel as if you are in over your head. When tax season comes along, that pressure is only amplified as you try to navigate the complex process involving various forms, calculations, and deadlines.
However, remaining in compliance with the IRS is critical for your business. Otherwise, you could be facing fines, penalties, or even jail time. While that looming threat might be enough to make you wish you had never started on this venture, it does not have to be as difficult as it sounds.
To help you avoid those harsh consequences and keep your business on track for success, use these 5 essential tax tips for new business owners.
STAY ON TOP OF BOOKKEEPING & ACCOUNTING
One of the biggest mistakes business owners make is falling behind on bookkeeping and accounting responsibilities. While these tasks can be time consuming and frustrating, they are essential. Not only does up-to-date, accurate bookkeeping and accounting help you manage your business finances throughout the year, but it is necessary for generating your financial statements which are used to complete your taxes and required for financial reporting to the IRS.
SEPERATE BUSINESS & PERSONAL FINANCES
As a new business owner, you may not feel like you are at a point yet where it would be difficult to keep an eye on your business versus personal finances. However, even if you have few sources of revenue and limited expenses, separating business and personal expenses as early on as possible is highly recommended. In the beginning stages, you may be able to keep just a separate business checking account. However, you should also start a business savings account where you can build an emergency fund.
With separate accounts, you will be able to more easily track expenses and business activities that may need to be reported on your tax forms.
CLAIM DEDUCTIONS & CREDITS
Deductions and credits are ways you can save on your tax bill. As a business owner, you should research which deductions you could be eligible for in order to maximize your tax savings. For example, business expenses such as your home workspace, office supplies, mileage, and travel are often deductible.
That said, you should ensure that you understand the guidelines for claiming deductions and tax credits, as well as which forms you will need to complete. For instance, to claim the Premium Tax Credit, you will need to fill out Form 8962. If you are unsure about which deductions and credits you may be eligible for, it may be worthwhile to consult a tax professional to evaluate your business’s finances.
PAY ON TIME & IN FULL
Your business will likely need to make quarterly tax payments for the year. In order to make sure you are prepared for those payments, it is important to budget accordingly and ensure that you know which dates those payments are due. The current quarterly tax dates are as follows:
- January 1st
- April 1st
- June 1st
- September 1st
If these dates fall on the weekend or a holiday, payment is due the following business day. Keep in mind that if your fiscal year does not start on January 1st, your payment deadlines may differ.
If you fail to make your tax payments on time and in full, your business may be subject to penalties.
KEEP ALL DOCUMENTATION
After your taxes are filed and paid, it may be tempting to discard your tax documents. However, the best practice is to hold onto your tax returns for at least three years after filing. This is because there is a chance you could face an IRS audit, in which case you will want to have all the forms, receipts, and other tax-related documents available for proof that you did not make an error.
When holding onto sensitive documents like your tax returns, make sure you use a safe and secure storage solution.
With these tips in mind, you can approach tax season more confidently and rest assured that you have a better plan for filing on behalf of your business. When in doubt, keep in mind that there is a plethora of free and affordable online resources that can help you get a better understanding of your business tax obligations.