The truth is, taxes can always be a time-consuming business, especially trying to make sense of all those complexities and issues revolving around which taxes are due (federal, state, or local), which filing process is required, and what type of taxes each level of government collects. However, it is always important for entrepreneurs and business owners to be able to understand the nuances around these and be adequately prepared even before tax days arrive. So, here are some tips on how to manage your taxes as a business owner.
Always plan ahead
In business, planning is everything and can be the difference between a smooth tax filing and payment, and a long drawn-out process with the IRS. First, have an idea of when to file early, so you can take advantage of early filing deductibles. You can mark out dates in your schedule or calendar every year for the quarterly tax filing and payment dates. Planning also hel[s to minimize your tax burden, and ensure you save money by paying as little as possible.
Make sure a digital and electronic record of every transaction is safely kept, as you will need to go through them when sorting your taxes. Make sure to keep a steady amount of money on the side, so you do not start running around when the date is due.
Figure out how much taxes you need to pay
The first step is to identify how much taxes are due, from local to state to federal. Determining your exact tax liability will help you identify the specifics involved in all obligations and give you the right framework when speaking to a professional. Generally, the task liability of most businesses will be governed by primary considerations such as business structure location, location, and assets.
Taxes are not only determined by revenue and deductibles, other notable considerations will include stock and inventory, structure, size, and the number of employees is also important considerations. Remember that if you are not a sole business owner and have employees, you will need to also file employment-related taxes.
Get professional help
It is always good for you as a small business owner to get professional help, so that all filings and payments are done correctly and under the law. Apart from the need to file correct taxes, professional CPA firms can be a very cost-effective way to get your filings done with minimal effort, and with much fewer complications. They can also help reduce the tax burdens and ensure as much money as possible is kept in the business, which is critical to the long-term success of your business.
As a small business owner, you want to minimize costs as much as possible, so you can either get a software tool to help with filing, or you can also decide to hire an accountant. Both measures can be effective but also quite pricey, an accredited CPA firm can be the best way to go.
It especially is the best option if such a firm focuses exclusively on small businesses, so it makes it easy to evaluate records and make sure it is the right fit for you. If you want to go with a professional CPA firm, Taxfyle is one of the best places to go when you want to file business taxes online. Other important tips to consider include;
Revenue and Deductions
After proper documentation, it is important to calculate all taxable income so that you can get an appraisal on what you can expect to pay, and how to make a budget for it. A revenue for taxation purposes is any sort of income you receive that is connected to your business, whether it is a product or a service. Generally, the main question is, would this income have been made if you did not start the business? If yes, then it is taxable business income. If not, then it is not taxable business income.
So, how do you determine any deduction? Well, deductions are important if you want to reduce your tax burden and take up as much profit as you can. It would be best if you remembered that tax evasion is different from tax avoidance. The former is illegal, while the latter is legal. With the latter, you are essentially taking advantage of loopholes within the tax system. Common deductions include travel expenses, entertainment, home office deduction, casualty losses, and capital expenditures.
An easy way to calculate what you make at the end of the day is by calculating your net profit. First, calculate your entire gross income, which is money made across the board with no deductions. Then make all the necessary deductions such as operating income, cost per acquisition, running costs, inventory, purchases, and other business expenses. The difference is the net profit of your business, for taxation purposes.
If you are a sole business owner, then you are obligated to pay your self-employment taxes from your business income. You can smartly reduce tax liability by choosing the right amount for self-employment and compensation, thereby giving you enough deductibles to compensate yourself, while ensuring that you have minimized your tax liability. Another interesting thing is that you can also deduct this loss against any business income accrued over the business year, or even let it roll over to the future, thereby offsetting income in the following years.
Another easy way to reduce tax liability beyond deductions is by claiming tax credits. The major advantage they hold is that they can be deducted from your business income for your tax bill. However, you need to have a good understanding of how tax credits work, so getting professional is the best way to go. They involve very complicated conditions, which can be problematic for first-timers.
Taxes can be a frustrating process because apart from their time-consuming nature, they also eat into precious profits. So, it is always best to make the process as easy and seamless as possible, while still ensuring you get to keep as much profit as you can. Following these steps is a good way to ensure that.
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2 thoughts on “6 Tips For Managing Your Federal Taxes as a Small Business”
being a small business owner you need to take care of the cash flow really well
Managing federal taxes are very important especially for a small business owner
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