We can talk forever on tech-focused topics like IT support and remote pc access, but today, we’re going to take a quick break from IT and focus a bit on what what Deborah Sweeney, of MyCorporation Business Services, Inc. calls one of the few words in the English language that strikes fear into the hearts of grown men:
Taxes.
To a start-up business owner, taxes and tax liability present an unavoidable drain on profit and growth. As a result, many entrepreneurs accept the inevitable hassle and overlook the numerous ways to make taxes more manageable and less costly. Following these four tips for careful planning and preparation can help avoid the stress of tax season and also prevent that other dreaded phrase, tax audit.
1) Find a Tax Friendly Business Structure. The first step in reducing tax liability is to make sure that your business is structured as a tax friendly entity. Some forms of business entities require that the business pay taxes on the money it earns throughout the year AND that the business owner pay taxes on the income he or she receives. This results in a double taxation scheme that costs the business twice. Most types of business entities, however, do not have to pay double taxes, and any tax owed is paid by the owner who receives the income. This is beneficial because it keeps money in the company and the business owner pays no more tax than would have been paid originally. When structuring your business then, make sure you choose a form of business that will avoid double taxation and help you meet your tax saving goals.
2) Plan Ahead. After structuring your entity, the next step is to build a staff of business professionals. Hiring an accountant to manage your taxes is a great idea and helps you itemize your expenses into the most tax efficient filing. Accountants are trained in tax preparation and are knowledgeable about little deductions that may make a big difference when it comes time to file your return. If you can’t afford an accountant, look into tax preparation software. The software will do many of the same things an accountant would and will keep you on track for a lower tax bill. Also consider hiring a bookkeeper to manage your financial statements and the budget. A bookkeeper with bookkeeping experience will help you budget appropriately, understand financial lingo, and generally relieve some of the anxiety that money usually brings. Having someone with financial experience on your team allows you to focus on running other areas of the business, like earning a profit.
3) Become an Excellent Bookkeeper and Learn your Deductions. Whether or not you have an accountant or a bookkeeper, maintaining extremely accurate records and learning the potential business deductions is key to paying lower taxes and avoiding a tax audit. There are many deductions for small business owners that the average entrepreneur may not know about it. For example, did you know that you can deduct car and gas payments for the time you use your car for work? Keeping tabs on the daily driving you do to visit clients or suppliers allows you to put a percentage on the part of your payments that go to work purposes, resulting in a deduction for your car. Learn the list of deductions and after that, write everything down. The combination of knowing what deductions are allowable and meticulous record keeping will make tax returns easier to manage.
4) Be on Time and Accurate. Finally, make sure your taxes are done properly and on time. As mentioned before, an accountant or tax preparation software can be good tools to ensure that you deduct what you can and pay what you must, all in a timely fashion. If for some reason you can’t have your taxes done by the deadline, filing an extension as soon as possible, and before the deadline, avoids any potential problems with the IRS. Making estimated tax payments too will reduce the burden when it comes time to pay the whole bill and will help guarantee that when that day comes, you will have the money available. If after all of your preparation, you don’t have money to pay your taxes, the IRS offers a variety of programs to help you out, including payment and settlement plans.
Paying your taxes can be a challenging task but it doesn’t have to be impossible. With a little preparation and planning, handling your start-up business’s tax liability can be a simplified, and less costly, process.
Guest blog submitted by Deborah Sweeney, of MyCorporation Business Services, Inc.
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