By Shiloh Johnson, CPA and founder of ComplYant, a technology platform giving entreprenuers a simple way to manage tax rules and requirements.
getty
Tax time is no one’s favorite time of year, but it also means added stress for business owners. When you own a business, there is a lot more information to be aware of and tax compliance requirements to maintain so you don’t have the various taxing authorities coming for you. While dealing with tax as a business owner can be tough, we’re breaking it down so that, in 30 easy steps, you can feel good about your tax situation and have a strong idea of how to move forward.
In the second installment to our three-part series, here are steps 11 through 20 helping you navigate the craziness of tax season as a business owner. For the first 10 steps please review the prior post.
Step 11: Open a tax savings account.
To make sure you’re saving money for taxes, open up a separate savings account specifically for taxes. Having it in a different account can help it stay off-limits and save what you need for tax time. If saving is hard for you to manage for you, there are technologies that can help with tax savings automation.
Step 12: Set aside at least 30% of your income.
You might be wondering, “How much should I set aside?” That depends on your income, business structure, tax rates and what tax you are responsible for paying. But to start, a good rule of thumb is to put away at least 30% of your income. So every time you get paid, take 30% and put it in a separate tax savings account.
Step 13: Save for retirement using a SEP-IRA.
When you’re self-employed, you’re in charge of saving for your retirement. One retirement vehicle is the SEP-IRA, also referred to as the Simplified Employee Pension Plan. Any contributions to your SEP-IRA are tax-deductible. That means saving for your retirement can lower your taxable income, so you may pay less in taxes while saving more for retirement.
Step 14: Use an HSA to save for health care.
Another way to save on taxes while funding another benefit is by using a Health Savings Account (HSA). An HSA allows you to set aside funds for health care costs. You can deduct your HSA contributions and allow your earnings to grow tax-free.
Step 15: Save receipts using auto receipt capture.
One important part of the tax process is keeping records of your expenses. But what should you do, just keep a bunch of receipts in a shoebox? No. You should use technology like Expensify to keep track of receipts. Additional tools include Quickbooks receipt capture and even simple scanning apps that allow you to save the scanned receipt in a much more organized cloud folder. You’ll want to retain copies of receipts for at least four years after the year of filing, in case of an audit.
Step 16: Review Profit and Loss statement.
Reviewing a Profit and Loss (P&L) statement is a great way to get a glimpse of what’s going on in your business’s day-to-day finances. Essentially, this report allows you to see all the money made and spent for a specific period of time. Bookkeeping tools can produce these reports for you automatically as you categorize bank transactions. Avoid creating this document manually if you can, to prevent errors in calculation. It’s best to consult a CPA if you’d like your reports reviewed for tax planning on an upcoming return.
Step 17: Use bookkeeping software.
As noted above, keeping good records of invoices and expenses is crucial as a business owner. It can help you stay organized and readily access the important numbers you need for tax time. That’s why you should use bookkeeping software to help. You can use something like QuickBooks, Xero or Freshbooks. Be careful to learn at least the basics of bookkeeping before handing it over to someone else to manage in order to spot errors and stay in the know.
Step 18: Track business-related mileage.
If you use your own vehicle for work, you may be able to deduct a portion of your mileage on your tax return. Keeping track of every mile manually can be tough, but if you download software like MileIQ or Logbook, you can easily track your business-related mileage to make the process easier and more accurate.
Step 19: Invest in your business.
Make sure to keep track of how you are investing in your business. Try not to use personal accounts on business expenses. Whether you choose to loan your business money or make an owner investment, each option affects your tax return differently. You’ll want to consult a CPA or an attorney for guidance on which one makes the most sense for you.
Step 20: Work with a professional.
Tax time is tough, but you don’t have to do it alone. Consider working with a licensed tax professional. Working with a professional who knows the ins and outs of your business and local state laws can help you with your tax returns and ensure you are taking advantage of as many credits and deductions as possible.
The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
Credit: Source link
