Owning a small business is already stressful enough without the added pressure of managing, filing, and paying business taxes. The key to reducing this stress and preventing errors and penalties on your taxes is to implement practices that help you proactively manage your small business’ tax liability throughout the year.
- Separate Your Expenses—When you start your business, set up a separate bank account and a separate credit card you can run your business expenses through. If the IRS ever conducts an audit and finds your business and personal expenses are intermixed, they might suspect comingled money.
- Maintain Accurate Records—Keeping inaccurate records throughout the year can put your business at risk for an audit. Diligently keep track of all your business’ expenses and income to ensure an accurate tax return.
- Classify Your Business Correctly—If you do not classify your business correctly, you could overpay on your taxes. Consult with the right professionals before classifying your business as a Limited Liability Company, Single Member LLC, Sole Proprietorship, S Corporation, or another type of business structure.
- Proactively Manage Payroll—The IRS will usually check that you have paid your payroll taxes on a quarterly basis, so make sure you are staying on top of payroll throughout the year.
- Understand Gross Versus Net Income—Make sure you fully understand what your business’ net and gross profits are for the year. This can help you identify ways to reduce tax liability and ultimately improve your profitability.
- Pay Quarterly Taxes—If you predict your business’ tax liability will exceed $1,000 for the year, you will need to make estimated quarterly tax payments. You must make these payments on April, June, September, and January 15th.
- Choose the Right Accountant—We’ll do more for your small business than just prepare your financial statements and do your taxes – we’ll work with you during the year to make sure you don’t have cash flow problems, properly track your spending and income, and monitor your business’ net and gross profits.