From the earliest days of my tax practice, clients came to me with difficult and seemingly unsolvable problems that I was able to resolve for them. I also had the opportunity of working with people at all stages of their small businesses. Over the years, in part thanks to the economy, my office saw more and more clients with small businesses, and with that comes the mistakes, the unrealistic expectations, and the lack of tax knowledge in this important area.
Tax Savings Tips for Businesses
Statistics shows that in by 2020, approximately 40% of the U.S. population will be self-employed. That’s a staggering number! As a business person, small or not, you have a duty to understand the tax laws, and it’s in your best interest to invest some time with a tax professional to get you running and up to speed so you can avoid unnecessary and expensive mistakes. Even if you want to do things yourself, meeting with a tax professional can get your questions answered quickly, help you set up your chart of accounts for bookkeeping purposes, and give you the due dates for various filings to save you thousands of dollars in penalties and interest.
There are people who dive headfirst into a new business with little thought about taxes and other obligations. Some people are unrealistic and give no thought to finances. For example, I had a client who went into a new businesses he was just sure would succeed. He rented a large, fancy office in a wealthy part of town, and never earned a dollar. And each month, that fancy rent bill of $10,000 came in. He wasn’t filing tax returns either, and got himself into a huge hole.
While there’s nothing wrong with the mindset that you WILL succeed, you need to start out slowly, as you will inevitably make mistakes and the key to your success will be the ability to learn from those mistakes and adapt.
One of the biggest ways to maximize your business is to not make TAX mistakes. Why? Because they are expensive! Hire everyone as a contractor when they are really employee? Not only will you have tax problems, but you’ll hear from the Department of Labor, too. Commingle personal and business expenses? Quickest way to have serious problems on an audit. Not keep books and records? It’s a requirement for businesses of all sizes, per the IRS. I’ve heard every story and excuse – I don’t understand taxes, the software let me do it, I didn’t have money for payroll, etc.
If you want to maximize your tax savings for your business, the best way is to plug the leaks. First and foremost, keep a separate business bank account. Make sure all business income goes into the business bank account, and you pay your business expenses from that account. Any personal expenses should be paid via your personal account. Keep all business bills in the business name. Have a separate business credit card. Separate your personal life from your business, even if the business is “just you”. A sole proprietorship is a business, too. Many people think if they didn’t incorporate or form an LLC, they don’t have a bona fide business and this can’t be further from the truth. The IRS holds you to the same standards as any other business.
With good recordkeeping, you can maximize your tax savings by taking all of the deductions you are legally entitled to take. You will also be able to track the business’ progress, comparing year to year, month to month, and have a grip on your finances. You don’t need to be an accountant – the required skillset is addition, subtraction and common sense. Set aside an hour each week to work ON the business, in addition to all the time you spend working IN the business. It will make a huge difference in your numbers, and you won’t have that sick feeling at tax time when you have to scramble to rebuild an entire year’s worth of records. With this control, you will see better results for your business and your money.
In addition to teaching workshops for the IRS, QuickBooks Connect, etc., Abby offers private consultations – Tax Bootcamp for the Self-Employed. If you need a crash course in understanding your tax requirements for your small business, and want to save time, money and avoid penalties from the IRS, this is for you. Contact Abby at email@example.com or call Choice Tax Solutions at 347.598.0111 for more information.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.