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Year-Round Tax Tips for Small Business Owners
Paying business taxes is always a painful exercise for small business owners. Such entrepreneurs have a perennial complaint that tax planning never helps reduce their tax liability significantly. Well, reducing your tax liability will require year-round tax planning. Focusing on your tax payments just a few weeks before the filing due date is never going to yield satisfactory results.
How Will Year-Round Planning Help?
An average small business is normally eligible for around a dozen tax deductions. You can claim deductions on:
Purchasing office supplies, furniture, equipment, and software programs
Using a car for business purposes
Business-related travel and entertainment expenses
Contributions toward insurance policies, retirement plans, and pension funds
Most small businesses never take full advantage of the first four deductions. Keeping track of these expenses requires systematic maintenance of records throughout the year. Not retaining proof of purchase and not determining the proportion of business costs in combined expenses can cause your business taxes to rise. Ideally, every single expense should be analyzed for its tax impact as soon as it is made. Unfortunately, tax planning is a once-a-year affair for most entrepreneurs.
Technology - the Perfect Tool for Tax Planning
Sorting and analyzing the tax implications of your expenses will be simple if you work with scanned copies of receipts and other documents. Use scanners with programs designed for such tasks. You can even transfer the images to your tablet for easy sorting and organization.
The IRS has fixed rules for determining the deductible components of rent and energy charges paid for a home office, as well as the running expenses of a car used for work and personal reasons. Feed the formula into a spreadsheet and use it as a template every time you pay rent or fill up on gas. Simply updating the file and retaining receipts will be enough to reduce your business taxes.
Spend Money to Save Money
Simply buying tax forms early will not bring down your business taxes. You must obtain the adequate number of journals and books necessary for recording business and nonbusiness transactions. These journals and record books cost less than $30 while refill sheets cost less than $10.
You can skip old-fashioned manual recordkeeping by opting for the latest online tax filing software applications instead. Depending on the features you choose, these programs will cost around $140 to $1700. The initial phase will be tough, but regular use should help you record data and anticipate business taxes in advance. This will help you make advance payments throughout the year.
Its important to know when to seek professional tax planning advice. Pay for professional advice instead of arbitrarily interpreting gray areas in tax laws in your favor. This will ensure you do not unknowingly violate tax laws applicable to your small business.
A holistic approach combined with diligent recording and analysis of transactions and expenses will help negate the feeling that your business taxes are not under your control. Combine technology with disciplined paperwork to keep your taxes under control.