7 Things You Should Know About Small Business Tax
From forms to filing, from learning all the laws to making sure your deductions are covered, learning about small business tax is a lot to take on â€” especially if it’s your first time.
While hiring a CPA to take care of it all is easy enough, you also want to ensure that everything they’re telling you is true. To avoid paying more than you should, and to know that you’re always covered, we’re here to help you learn the basics.
Read on to learn seven of the most important things about small business tax filing.
1. Learn the Laws
While you don’t need to know all the laws, it’s a good idea to know the basics. These are often subject to change, so it’s good to run a refresher for yourself each year to keep up with the latest.
The other thing to remember is that you have to learn the laws on three levels: local, state, and federal. Federal taxes are their own category and typically refer to the IRS, while different states and even counties might have their own set of tax laws to abide by.
2. Keep Adequate Record
Next, you’ll want to establish a record-keeping system. Not only is this going to help your tax return remain as accurate as possible, but it’s also going to help you ensure you’re receiving all the deductions you’re capable of.
Even better, if the IRS decides to run an audit on your business, then you’re going to know you’re covered.
There are even convenient websites, like Taxfyle.com, that can help you get started with and maintain your records from the time you start your business.
3. Separate Business From Personal
This is possible even if you’re a sole proprietor. While having a business checking account is the most ideal thing, a separate personal checking account is just as effective.
The idea here is to simply keep your personal and business expenses separate from each other. If the IRS ever decides to audit your business and see that the two are in the same accounts, then they’re going to be able to access your personal accounts as well.
It doesn’t matter how accurately your bookkeeping has been, they’ll be able to see everything you’ve done for that tax year.
4. Correctly Classify Your Business
Ensuring that your business is correctly classified is important for a lot of different reasons, the main one being to ensure you don’t end up overpaying on your taxes.
There are different rules and regulations for sole proprietorships, LLCs, S Corporations, and C Corporations. The structure you choose for your business is going to affect your taxes differently, so it’s important that you choose the right one.
Meeting with an attorney and an accountant can help ensure that you’re choosing the right classification for you.
5. Hire the Right CPA
If you’re not doing your business taxes yourself, then it’s important to ensure that you’re hiring someone who can do them well for you. Here are a few questions you can ask when you’re looking at different CPAs:
- How much experience do you have?
- Do you have a PTIN (preparer tax identification number)?
- Who’s actually going to sign my tax return?
- What licenses and/or registrations do you have?
- What types of clients do you typically work with?
- What is your specialty?
- How do you determine rates?
- What happens if I get audited?
- Who’s actually going to be working on my return?
- What is your typical turnaround time?
Your decision should not only be based on the answers to these questions but also on how they go about answering them. Do they communicate effectively, or did you find it difficult to get a solid answer from them?
As a business owner, you want someone that you can work well with, and you want someone reliable. If you feel like the CPA you’re looking to hire is difficult from the beginning, then a working relationship might be difficult to maintain.
6. Keep Track of Your Mileage
If you drive to different places for your job, then it’s important to ensure you’re keeping track of that mileage. It’s a tax write-off, but to take advantage of it requires serious record keeping. Here’s what you should include:
- The business purpose of the trip
- How far you’ve traveled
- Where and when you traveled
- How much was spent on gas
This sounds like a lot because it is, but there are ways you can track your car’s mileage without even really having to think about it. There are apps you can download that keep track of everything we just talked about, and they’re perfect for living up to any scrutiny the IRS might have in store.
7. Set Aside Money
This is where a lot of self-employed folks get confused. There are two parts to the percentage you normally set aside each paycheck â€” the federal taxes (for social security and medicare) and then state taxes.
Both these percentages can change at times, so it’s important to check every once in a while to ensure you’re up-to-date. The most important thing to remember, however, is to make sure you’re putting money into a separate savings account each and every time you get paid.
Remember These Small Business Tax Tips
This article only covered the basics for getting started with small business tax, but it’s enough to help you get started and on the right track. Aside from this, the best thing you can do is find a CPA with plenty of experience in the field that understands the laws and your personal business needs.
With that in mind, you’ll have yourself set up for success in no time.
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