Tax Preparation Tips
Dear Readers,
Tax season is upon us, so it’s not surprising we’ve had several readers’ write-in with questions about small business tax preparations.
Josh: What’s the best tax preparation advice you would share with small business owners, Pedro?
Pedro: Preparing taxes for small business can be a real challenge for their owners. First, make sure your personal accounts are separate from your business bank accounts. Maintain a separate checking account and credit card for your business. Also, consider starting a savings account for your taxes so that you are regularly putting money aside. Most importantly, get organized and keep detailed notes all year long. Evernote is one of apps I hear the most about. It’s a great tool to digitize your receipt. As a banker, what do you recommend?
Josh: Because there’s such a risk in not preparing taxes correctly, I always recommend hiring a tax expert to assist you. This route may be your better option and even save you money in the long run. Plus, tax preparation fees are tax-deductible. There is a variety of advisors you can choose from, such as national name brand services that advertise a lot, to independent CPAs (certified public accountants) and lower cost bookkeepers. With guidance and advice from a tax preparation professional, you will not only learn about strict tax compliance requirements but also gain the value of having accurate and complete records. These records will generate reliable financial data off which you’ll be able to forecast things like growth and budgets too.
Pedro: That’s true. Some of the biggest mistakes I see small business or start-ups run into is either choosing the wrong legal entity or not fully understanding your tax obligations. You may choose to use sole proprietor, partnership, or some form of corporation as the legal entity for your business. There is no “right” choice—only the best entity choice for your company. Learn the advantages and disadvantages of each before making this important choice. For example, owners of “C corporations” pay a corporate income tax as well as their individual taxes. Knowing the tax laws associated with each of the entities will help. Secondly, have an understanding of your tax obligations. Once companies start earning revenue, there are myriad taxes that need to be taken care of on a recurring basis. Given your location and legal entity, the question is: What does full tax compliance look like for your company? You may be responsible for: state and federal taxes, licensing fees, payroll taxes, 1099s and more. A CPA can help guide you.
Josh: You definitely want to make sure that you are taking all possible deductions and an accountant can help you maximize your deductions. A CPA can also answer questions like: Should I make quarterly tax payments or pay all at once at the end of the year? When are my federal and state taxes due? Remember: If you do business in different states, you might have to file in each state. Are there any special deductions I can claim if I make any big equipment purchases? What did you learn after reviewing our accounts receivables and inventory balances?
Pedro: The U.S. Small Business Administration website at sba.gov is another great online source of tax information as is the Internal Revenue Service website at irs.gov for webinars, videos and more in its small business tax center.
Filing taxes is no easy feat. We’d love to hear from you. We are offering $100 gift card to the reader whose question is selected next. Please submit your business questions to together@lead.bank.
