Tuesday, January 11, 2022

7 Tips for Navigating Taxes as a Small Business Owner

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Being a small business owner is tough, and it’s even more difficult trying to figure out how to navigate taxes. There are so many questions when it comes to being a small business owner, and even bigger questions if what you’re doing (such as a side hustle) is even considered a small business. In general, taxes can be daunting and overwhelming. There’s a whirlwind of information online about small business owner taxes, but the information is mostly confusing, right? Taxes can be very confusing but they can be navigated, whether you’re wanting to learn all of this yourself or hire a professional such as a bookkeeper or an accountant, it can be managed. These tips will help you out as well.

Look into hiring a professional

This professional would be an accountant, bookkeeper, or even a financial advisor. But in general, it’s best to hire a professional to help you out. When it comes to taxes, it’s a very serious matter and it can’t be messed up. But you also want to make sure whoever you hire is going to be the right professional for your business. You wouldn’t want to hire someone who has worked for corporations when you’re just a single-person business, right? So make sure to do thorough research on who may be the best for you.

You’ll be working with this professional a lot, as the income and spending are going to be tracked, monitoring gross and net profits, as well as cash flow.  It’s best to find an accountant or some other financial professional to help you out even before you open up your business. From day one of your business they’re going to be helping you out, not just during tax season. The importance of accounting and bookkeeper are crucial to the survival of a business. They will also be able to help you out in the case that you’re needing to see a tax attorney. Never underestimate hiring a professional, as they can make your job easier and less stressful.

Keep records

An essential preparation for your business would be keeping records of everything. You’ll want to keep records of everything through the year, even before you start up your business you’re going to have to have records as well (such as buying needed items and tools for your business). Your records need to be accurate and you need to ensure that your tax return is correct as well. 

If you don’t have records then this could lead you to deal with being audited.  While it’s very important to hire a professional to help you out, you should also look into purchasing some accounting software that’s user-friendly, inexpensive, and can help you out in tracking income as well as expenses.

Seek advice from professionals

It’s best to hunt for a good accountant that can be of assistance to you. A good accountant is going to help you out by providing advice that will allow your business to thrive. You’ll want to seek advice for multiple aspects of your business and even personal expenses such as retirement. The plans that you have for your business are very important, and it’s just as important to get yourself a good accountant that can help you navigate through all of this confusion, give you words of advice, and help you out.

Look into hiring a payroll company

If you’re a small business owner that has employees, then it’s best to look into hiring a payroll company to assist you. However, you’re going to want to make sure that the company is reputable as well. Some business owners will hire a small or lesser-known payroll service in the hopes of saving money. While this can work out sometimes, there have been multiple cases where these smaller payroll services were remitting payroll taxes for the company. You want to avoid this at all costs, so make sure you’re looking into payroll companies and reading their reviews. The IRS tends to check quarterly to see whether or not payroll taxes have been paid.

Understand how to classify your business

No matter what size your business is, the industry, or anything, you’ll have to know how to classify your business. This is something that can be a bit complicated and even downright confusing as well. If you fail to properly classify your business then you may then be at risk of overpaying taxes, and who would want to do that? There are multiple classifications and you’ll need to figure out which one your business is. It’s best to look into talking to an accountant as well as an attorney to best determine what your business is classified as.  

Let’s say that your small business is only you, and you haven’t hired anyone else, you’re not outsourcing work either, and no one other than yourself has invested in this business. In this case, you’re most likely going to be the Sole Proprietor. While this example will make it seem simple, there are other classifications for a business that can make it seem more complex.

Keep your expenses separate

It’s best to keep your business expenses and your personal expenses separate from one another. On the off chance that you were to get audited by the tax authorities such as the IRS, you’ll want to avoid having your personal and business expenses mixed in. It doesn’t matter if your business expenses were reported correctly either. 

It’s best to have a separate bank account and even a separate credit card for your business. This is going to make everything easier, plus this is also going to keep the tax authorities from looking at your personal expenses as well. It’s less of a headache if you have everything completely separate from one another.

Claim all income to tax authorities

The IRS will get a copy of 1099-MISC, so you’ll want to make sure that this is going to match the income that you have received. Make sure the income report to the IRS matches the amount because if it doesn’t and the IRS notices, then it will be flagged. It can get very confusing but if you hire a professional such as an accountant, they’ll be able to help you navigate this. 

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