10 Tax Tips For Entrepreneurs
Get prepared, get organized, feel accomplished!
When the tax time is around the corner, most entrepreneurs start scrambling to straighten their accounting information to ensure they file the right taxes at the right time. Most entrepreneurs think that accounting involves the preparation and filing of income tax. However, the truth is small businesses owners should also ensure that accounting is done throughout the year, and not relegated to the tax deadline. Having proper accounting information assists when filing taxes and helps make sound decisions, secure finances, and improve business management.
Regardless of the business you're running; the core objective is to ensure that your business's financial foundation remains strong. The essential aspect, in this case, is how you handle your business taxes.
Here are our top 10 Tax Tips for Entrepreneurs:
1. Separate business and personal expenses
Mixing up your business and personal expenses is highly discouraged because it brings a lot of confusion, especially when the tax period arrives. Therefore, it's essential to track these expenses separately. You can open a business account for specifically operating your business and a personal account for your personal use. This is essential and will assist you during the tax period during the organization and reporting of your business expenses. On the other hand, you might be involved in a legal battle whereby one of your customers sues you. In this case, if you didn't track your business and personal expenses separately, your assets might be involved in the lawsuit.
2. Tidy up your payroll
There's nothing worse than keeping your payroll unorganized. In most cases, the IRS doesn't spare those who ignore to pay dues, including the stipulated income tax or social security. If you have some employees, it's essential to take your time and ensure that each of your employee's tax forms is in the right order. Failure to check this means that there are high chances of paying the incorrect amount or making late payments. These mistakes amount to hefty penalties that might drag your business behind. Tax experts advise that it's essential for start-up businesses to hire an accountant during the initial stages of operations to carry out all the paperwork and ensure taxes are filed on time.
3. Keep all documents properly organized
Keeping good records of all your receipts and invoices is very important. However, most entrepreneurs tend to ignore this aspect. There are many benefits of keeping good records, including a proper understanding of tax-deductible expenses, easy and timely tax filing, and ease of uncovering specific areas that will make you save a lot of money. Your receipts and invoices can be stored manually or electronically. However, you can use both, although the electronic option is the most effective because you'll have a backup if the manual records get damaged.
4. Hire subcontractors
Although most people think that hiring subcontractors is costly compared to in-house employees, the truth is that it's actually cost-effective most of the time. First, subcontractors don't get any benefits or equipment required for running a business. This plays a significant role in relieving your business since you won't pay full-time salaries and employee taxes. Statistics show that you'll save between 20-30% in taxes when you hire a subcontractor instead of full-time workers. Additionally, you'll avoid the costly penalties associated with issues such as unpaid Medicare or social security taxes.
5. Have a retirement plan
Most entrepreneurs think that the only way to lower their tax expenses is through their overall business expenses. You can lower your tax expenses by opening a retirement account and investing in it. Regardless of your business's size, you should set up a plan and come up with a bare minimum of contribution. The type of account you select will largely depend on various factors such as your employee number, business structure, and your general short-term or long-term goals. Your objective, in this case, will be reducing your business taxes and saving money.
6. Consider tax-efficient investments
You can reduce your tax bills by investing in tax-efficient investments. Taxes and asset allocation have a significant effect on investment returns. Paying taxes means that you'll lose a certain amount of money together with the growth proportion the money would have brought. It's therefore essential to choose the right tax-efficient investments and accounts to reduce this burden. Some of the best investment accounts you can open include taxable accounts and tax-advantaged accounts.
7. Hire a tax expert
A tax expert is someone who's experienced in handling tax matters, including tax preparation and filing. They play a crucial role in assisting entrepreneurs when the tax period comes. Most entrepreneurs usually have a lot of expenses to cover, and they also have to make sound decisions on what products or services to invest in. However, some don't understand the importance of getting a tax professional to assist them because they see it as an additional expense. A tax professional will help you in undertaking all your tax aspects and thus saving a lot of money. It's, therefore, advisable to hire a tax expert before the tax season. This expert will also assist you in determining the best form of corporation depending on your expenses.
8. Hire family members
This is among the easiest ways of reducing the tax burden of your business. In most cases, tax experts recommend this for start-up businesses. Taxation laws state how related people should be taxed when working in the same company. Getting some of your family members to work as regular employees at a specific salary will reduce your company's taxable income. Additionally, you'll grow your business because of the trusted people you're dealing with.
9. Claim depreciations
It's possible to claim depreciation, also called special depreciation allowance, irrespective of whether you acquired the equipment while new or used. Some of the business items that you can claim depreciation for include vehicles and computers. The IRS has categorized several tangible items as depreciable, including machinery, buildings, vehicles, equipment, and furniture. The intangible items include software, copyrights, and also patents. If you claim your property's depreciation, you'll get some tax relief over time.
10. Intensify your marketing campaigns
With everything today going digital, it's essential to leave traditional marketing techniques to grow your business by creating an online presence that increases your client base. It's also crucial to understand that all marketing costs are tax-deductible. This means that you'll save a lot by intensifying your marketing campaigns and grow your business.
In conclusion, these are some tax tips for entrepreneurs. Others include filing an extension, bunching miscellaneous expenses, and getting dividend payments.
