Tax Prep Tips for Your Business
You’ve set a successful budget, you’ve hired an accountant, and you’ve sent out your required tax forms to your employees. Now you face the daunting challenge of filing taxes for your small business. Tax laws, exemptions, and deductions change from year to year, and you have to consider how well your business performed. Money Mastery LLC is here to help with tax prep tips for your business.
Work with your accountant year round
The first and most important tax prep tip for your business is to hire a professional accountant at the start of your business. We recommend reviewing your finances frequently in order to make necessary adjustments to your budget. Our professional tax services will help your business follow local and federal tax laws.
If your accountant is familiar with your business income and expenses, you are more likely to avoid overspending in taxes during tax season. Can’t afford an in-person accountant? We offer virtual controllers, so you pay less for the same level of expertise.
Choose your business classification wisely
A second important tax prep tip for your business is to examine your company and determine how you want to classify it. Your business classification plays a big role in the taxes you pay and the deductions you can receive. Some common classifications include:
C Corporation: Also known as a corporation, if you plan to start a high-risk business and eventually want to sell it, this is the classification for you.
Pros: You are protected from personal liability and you will have plenty of ways to raise and earn money.
Cons: It is costly to start up a corporation. Your profits are often double taxed.
Taxes: Corporate tax
S Corporation: An S Corporation is a good choice for business owners who want to avoid double taxation but identify as a corporation and put themselves on payroll.
Pros: Asset protection and lower effective personal tax rate.
Cons: You must ask the IRS to allow you to be taxed as an S-Corporation and follow some other corporate formalities like keeping meeting minutes and designating officers.
Taxes: Personal tax
Limited Liability Company (LLC): There are several types of LLCs and they are a bit of a chameleon when it comes to taxes. You must carefully consider which one is best for your business. Seek the advice of an attorney AND your tax professional.
Pros: It is much cheaper to start up than a corporation and easier to manage.
Cons: You will need legal advice to determine the type of LLC that is best for you. Owners cannot be on payroll.
Taxes: Can be tricky depending on the type of LLC. Self employment tax, personal tax or corporate tax depending on LLC type.
Sole Proprietor: If you are the only owner of your company you are most likely to classify as a sole proprietor.
Pros: It is the easiest classification to obtain. Simplicity.
Cons: You are personally liable for any debts and lawsuits to your business. You also cannot sell stock to raise money or put yourself on payroll.
Taxes: Self employment and personal tax rates can be as high as 30%.
There are many more business classifications to consider. Work closely with your accountant and a lawyer to determine which will work better for your business before you open your doors to the public. It can be difficult to change your classification and will significantly impact your taxes.
Plan for tax credits and deductions before tax season
Our third tax prep tip for your business is to plan ahead. If you know tax credits and deductions at the start of the financial year, you can plan your business expenses around them.
You may be thinking “how can I plan when these change every year?” The answer is to base your calculations on those that currently exist and monitor if there are changes before the end of the year. We discussed several in our previous tax related blog, but there are so many tax credits, exemptions, and deductions that you will find several that apply to your business-if you plan ahead. There are large tax deductions such as the section 179 property and credits you can carry forward from year to year.
The employees you hire and the stocks you invest in can benefit you when you file your taxes at the end of the fiscal year. With proper record keeping, you can even deduct your startup expenses.
Record Everything
Our fourth and final tax prep tip for your business is to maintain detailed records of any and all business expenses. This will protect you if you are audited and increase the amount of deductions you will qualify for. We recommend hiring a full-time bookkeeper who focuses on your payroll, receipts, and all business expenses such as mileage, travel, and retirement contributions.
Your bookkeeper will love you if you invest in QuickBooks Online for digital record keeping. As a ProAdvisor, Money Mastery can help you choose the level of QuickBooks online that best suits your business needs. Your bookkeeper and accountant should communicate often to ensure accurate financial reporting. Money Mastery offers monthly and quarterly tax planning meetings.
Tax preparation can be daunting since the consequences of not filing your taxes properly are severe. Don’t gamble your livelihood, partner with the experts at Money Mastery and let tax season help your business thrive! Contact us today, you won’t regret it!