Tax and businesses are like two wheels of the same car. One simply couldn’t exist without the other. In order for a business to run smoothly and in compliance with the law, tax duties should neither be forgotten nor ignored. The large fishes of the industry have been dealing with taxes for ages and probably have hired a group of experts for maintaining just that. But then there are new and small business owners. Their first fiscal year is definitely the hardest for them. When they try to tackle the tax beast without knowing any tax tips for small business owners, filing and maintaining taxes not only becomes the most hectic part of their job but at times also end up being a disaster.
As a result of all this tax hassle, small business owners began to cringe from the very word of tax every time it gets mentioned. And as a fiscal year draws to a close, let’s just say they are overwhelmed with all that has to be done, to say the least. Now if we have managed to warn and prepare the new business owners of small tax tips for small business owners firms with enough horrifying details of maintaining tax, the responsibility falls on us to humor these folks with some smart tax tips for small business owners.
As the fiscal and tax year comes to an end, it becomes necessary for business owners to keep a check on everything. Not only do they have to have to keep a rightful check and maintenance of their tax, they also had to make sure that their income tax is charged to the minimum. These businesses are small and just in their starting years; a hefty income tax will shake their financial situation from the core. Keeping that in mind and other details that are crucial to do things legally while also keeping their financial condition intact, we have created a complete guideline along with tax tips for small business owners and other matters that needs to be addressed. So without further ado, allow us to help you regulate your taxes and let you have a splendid new year soon after. Let’s make it all a happy business.
Before we move to preaching and humoring you with some smart hacks, let’s all understand the most basic concepts of tax. It is not just important to pay heed to valuable tax tips for small business owners but it is also very crucial to understand what taxes really are and why each of us need to pay our part.
Taxes are monetary contributions that have to be paid by every individual and business entity. Contributions made to whom and why? Well we pay these taxes to government, or to our state more specifically for being a part of the nation as whole and making our own contribution to its revenue. Many people contain hard feelings towards taxes. However, these very taxes are used for the wellbeing of the nation. Better schools, public places and other public programs are all funded by these very taxes.
And as far as businesses are involved, they are earning their income because of the masses and it is only their responsibility to contribute something to the state that is helping them make cash. These taxes are calculated based on an individual’s or a businesses’ expenditures, enjoyments, occupation, assets, property, etc.
Tax Basics That Every Small Business Owner Should Know:
It is necessary for businesses to plan their taxes and then select the form of their business. Here’s why:
· Figuring Out Your Tax Game Plan:
It is all on a business owner and how they plan on paying their taxes. While they cannot control the rates of taxes or the system put in place by the government, they can however determine their own workings. Every business transaction they conduct will either increase of decrease their taxes. Now no person, individual or business owner would like to pay a hefty amount to the government so they try every method, every hack and every shortcut that will help them achieve the minimum tax liability. All of these tax reduction hacks are expected and even considered sort of an art – it is however wrong morally and legally to resort to wrongdoing to evade taxes.
· Business Entity:
Each different business entity regulated a deferent sort of tax flow, whether you own a sole proprietorship, partnership business, a limited liability, or a corporation. Before you start a business, pay special attention to all your long term goals and which form of business will help you reach that. Each type of business legal entity has their own goods and bad, benefits and limitations. Corporate taxes for instance, are high, yet it has other benefits. These facts are all the more reason for you to learn about tax tips for small business owners so that you know all about your business entity and how it can or cannot work in your favor.
· Tax Year:
Every business has a tax year, the time when your taxes are due. While tax computing and hacks are running throughout the year, it is this time when a business’ expenses and income accrued or paid are figured out and taxed accordingly. It is also time period when all the tax-saving strategies begin to come in really handy.
· Calculating Income:
Income tax is determined with the help of income made by businesses throughout the tax year. Gross profits from sales are taken into account and then all the expenses are deducted from them. Any expense made in the name of business must go into the books.
Other things that determine income tax include:
- All the sales you made throughout the year and its gross income.
- Besides sales, there are other means of income that is particular to different business niches. Depending on the nature of these incomes, they are used to determine different parts of taxes.
- Using you inventory, the costs of goods sold are determined and then added to the income tax.
- Let’s just say that your expenditures and deductions are your best allies during the tax year. The more your expense, the more deductions in your tax. From entertainment expenses to home office deduction, the tax tips for small business owners will come in handy when determining this part.
· Capital Assets:
A business can simply not run without assets and equipment’s, furniture and properties. While at the time of transactions, all these things will look a major burden but during your tax year, the very same expenses can save your number of cash. Capital assets are the all the major assets that has been in your business and running for almost a year and only they can be considered during taxation.
Following are some other determinants of capital assets:
- Remember that the number of years matter a lot during deduction. That is, each year the asset is used, its value will drop. The longer you have an asset in your possession, the more it will depreciate in value.
- You cannot determine tax deductions according to your own will, the Internal Revenue Service (IRS) has released their own sets of rules and regulations that determine the deduction and depreciation for the purpose of determining taxes.
Tax Tips for Small Business Owners and How Can They Tackle the Beast:
Without being technical, the first tax tip that we would like to give to small business owners is not merely a tip but might as well be a secret to a successful business. Perk up because what we share right now will one day save your life. Read on:
1. Think with your head:
This is a general attitude that we want everyone to have when trying to make head and feet of taxes. Panicking, confusing, anger and frustration will take you nowhere. Just keep a level headed stance for the whole ordeal and try to place your intellects and smartness on the table and work with it. All it takes is that you make sense of the whole working just once, and from then on, you can control your taxes however you like.
2. Don’t wait until it is right in front of you:
This is what exactly owning a business means – keeping a check on every single detail with short and long term goals in your mind. Same goes for taxes. Small business owners handle their taxes by maintaining the at the time attitude. They believe taxes are a bridge which they’ll burn when they’ll be standing right on its edge and that’s where they have been wrong. This tax tip for small business owners will help them greatly and that is thinking about taxes all year around. Begin to plan about your tax way ahead and figure out ways to save money in advance, because when tax month will arrive, you’ll be too busy with figuring out how taxes work to actually do something about reducing your tax income.
3. Don’t depose just yet:
Carrying the last thought, here’s one more tax tip to for small business owners: Don’t touch your depreciable assets just yet. You can dispose of them the next year, but for now, keep them a bit longer. You need your Capital Cost Allowance Claim to be its maximum and disposing these assets will not work in your favor. We bet you never thought of that.
4. Get help:
We understand that in the early days of businesses–especially small ones–the income is not really very accommodating. Still there is a need to prioritize. Hiring a pro for taxing should be among the top 10 of your priorities. Tax attorneys are not only knowledgeable as far as their official status asks them to; they are also very smart when it comes to all the hacks, tips and smart inner workings of the taxes are concerned.
Also, taxes and their laws really are difficult to maintain and understand, and small business owners are already way too busy by running a one-man show. Tax attorneys or accountants will not only do everything properly but will also acknowledge tax breaks and pat attention to tax deduction over which an owner might have overlooked.
5. Business expenses:
Keep a check on your inventories and business expenses. Now we are not asking you become a spendthrift; we are just asking you make proper expenses for your business without delaying or ignoring them, do proper advertising, promotions, buy what you need to buy for the sake of business. All these things will not only help you let your business grow but will also help you reach a considerable tax amount. One that will suit your bank balance.
6. Law updates:
Laws for taxes are always changing and there’s a high chance you might have missed it. While your hired attorney will help you stay updated, it would never hurt you to keep a check yourself. This way, you’ll not only be able do things according to the rightful law but will also be able to benefit from some that might actually be launched in favor of small business owners.
7. Keep your startup expenses in mind:
It’s a common mistake made by most small business owners, especially those who are new. They are unaware of the fact that business expenses, even start-up expenses are deductibles and will help them largely with reducing their tax. What is even more special about this tax tip for small business owners is that they can use these expenses as deductibles even before their first customer has stepped into their shop. Do you know that even research investigation expenses can be deducted during taxation? That’s right. Including startup expenses means you have the opportunity to add a wide array of different expenses that took place into your tax deductibles and as a result your tax rate will be decreased largely.
Another tax tip for small business owners is to save as much as they can from their payroll taxes, each employee means paying more tax. So instead of hiring more and more new employees, save your money, time and tax by hiring your family members for odd jobs. Or you can hire independent contractors since there is no payroll tax for their salary.
9. Have lunch on the business:
When going out and about with colleagues or scheduling a meeting in a restaurant, have these receipts signed in the name of business. All these receipts combine will add a good amount of expense in your books and will further decrease your tax rate by a large difference.
10. Use car for business:
Another tax tip for small business owners which they should pay special attention to; a small business owner goes to dozens of places in a day and runs small errands for business on their car, yet, when it comes to maintenance and gas charges, they pay it all out of their own pocket. Make sure to add this expense where it rightfully belongs. If possible, keep two cars, one for business use and other for personal use. This way, you won’t have to face the burden of proving anything.
11. Home office deduction:
Hear out this tax tip for small business owners. It’s a very common thing for small business owners or new ones to set up a home office, though many make the mistake of keeping it hidden for fear of getting the attention of auditors. No need to fear though. As long as you keep clear cut records of your expenses and have valid proof that they are being used for the sole purpose of furthering business, you are good to go. ,
Here are a few points to remember:
- Designate a separate room as your home office. It should not be incorporated in any way with your living area or room.
- When it comes to computers, must make sure you have at least two in the house so that you can prove to the auditors that one is indeed used just for the purpose of business while the other one is used for personal matters, having just one computer in the house will not be counted as business property.
- Having a separate room will also help you deduct rent, mortgage or other expenses relating to property for just that one room. Oh and all the utility bills and other maintenance expenses of that one room will also be counted as business expenses. So make sure you prepare a room at home that could be called your business’.
So now that you are aware of some of the smartest tax tips for small business owners, you can deal with taxes like a pro. If anything, you’ll be waiting for the tax season to arrive so that you can pull off your ideas and these tax tips for small business owners without any problem. Taming the tax beast is really all a matter of mind and knowledge. Combine these two things and even the worst tax conditions wouldn’t be able to bring your business down.