Tax time may have already passed, but don’t wait until next year to get your finances in order
Running a small business means you’re tasked with the complexities of paying taxes. It’s important to keep records of expenses, file on time, pay quarterly taxes if applicable, and more.
Managing all of these moving parts can be a challenge. But when you have the right information, it’s much easier to create an actionable strategy that will minimize stress and even help you save money.
Here are tax tips for small business owners.
Knowing your deductions
Of course, no one wants to pay more taxes than they have to. But without knowing all your options, you could be overpaying. Start by maximizing your deductions. These are a few of the top small business deductions to know about:
- Home office and expenses. You may know that you can deduct your home office. This requires either taking the standard home office deduction or figuring out the percentage of your home the office takes up. You can also deduct expenses related to your home office, including repairs, utilities, internet, insurance, and more.
- Vehicle costs. If you use a car at all for your business, expenses related to your vehicle, including gas and maintenance services, are deductible. As with the home office deduction, you’ll need to calculate how much you use the car for work versus personal reasons.
- Equipment and supplies. You can deduct common business equipment costs like a computer, printer, monitor, and furniture. Note that you can track the depreciation of these items and report that loss when doing your taxes.
- Employee wages. The payments your business makes to your employees, including some fringe benefits, can be deducted as business expenses on your taxes. However, note that contractor payments aren’t considered employee wages.
- Professional fees. If you have to hire an accountant or legal assistance, you may be able to deduct those expenses.
- Startup expenses. Business permits and the costs of creating a limited liability company (LLC) are deductible, so keep track of these expenses.
Paying estimated tax
If you have a sole proprietorship, partnership, or S-corporation, you must make estimated tax payments every quarter throughout the year, in addition to your annual tax return. If you fail to make these payments, or you don’t pay enough, you’ll be penalized with fees. Remember that you’re responsible for paying Social Security and Medicare payments on top of income tax.
To stay on top of estimated taxes, put aside a portion of each paycheck, so you’re prepared.
Knowing tax law changes
Recent tax laws changed the way some expenses are treated. For example, now you can only deduct half of meal expenses for your business, and there is no longer a deduction for entertainment expenses beginning in 2018.
For example, if you have a business dinner with a client, you can still deduct half of the meal, but not other activities that would be considered entertainment, like attending a sports event.
Other changes that the Tax Cuts and Jobs Act (TCJA) implemented include:
- A new qualified business income deduction, which allows pass-through entities to deduct up to 20% of business income
- Decrease in the corporate tax rate, from 35% at the top tier to 21%
It’s always wise to keep an eye on changing regulations that could impact your taxes. Working with a tax professional will help you understand new laws and ensure you’re following all guidelines.
It’s a challenge for some small business owners to keep accurate and organized records for taxes. But anyone can implement a basic system that will help you keep track of your expenses throughout the year.
Make sure you keep the receipts you’ll need to report. One tip would be to get a digital receipt sent to your email whenever you make a purchase so you have a digital record of the transaction and can avoid keeping a lot of paper.
Try using a tool like QuickBooks, where your business income and costs can automatically be tracked. You can categorize each transaction depending on what it is. And a big benefit is that this tool can help you figure out how much you should pay for quarterly estimated tax.
When tax time rolls around, there are many online tools you can use to make paying taxes easier if you don’t want to hire a professional. Platforms like H&R Block guide you through the tax filing process.
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