Many people feel that filing their personal taxes can be stressful and frustrating, so the thought of doing it for their business can send them into a sincere panic. In reality, as long as you are prepared in advance, it is really not that scary at all.
Here are a few things you will need to make sure your small business is ready to file taxes:
Keep accurate and up-to-date records
Every small business needs some method of keeping track of the finances throughout the year. Whether you use a manual system, desktop accounting program, or an online invoicing application, there should be detailed and current records of all of your expenses and income. An automated bookkeeping system will work best, since it usually includes all of the financial reports that you will need for tax season. If you enter any new receipts into the system every week, it will take almost no time to print the yearly totals when it comes time to file.
Understand your deductions
Business deductions include everything it costs you to run your business. Office supplies, furniture, travel expenses, and utilities are pretty straightforward deductions, but there are others that you should consider. Do you use your vehicle for work? If so, you can deduct mileage, parking fees, and tolls. Do you have a business loan? If you do, you can deduct the interest. The same can be done if you have a bad debt or credit cards. Whatever it takes to keep your business running smoothly should qualify as a deduction.
Understand tax credits
Make sure to research the various tax credits that are available. The Small Business Jobs Act of 2010 has over seventeen tax provisions that can decrease the tax burdens for small businesses. There are also tax credits within the Affordable Care Act. These tax credits allow small businesses to cover up to 35% of the premiums they pay to cover their employee’s health benefits. If you bring your paperwork to a tax professional to file on your behalf, they will be able to tell you exactly which credits will apply to your business.
Keep personal and business expenses separate
There could be times where you need to dip into your business account for personal reasons or vice versa. This will create confusion at tax time and it will make it more difficult to determine exactly how much your business has made. If you need to bounce back and forth between accounts, keep a detailed record, and bring everything back to even before it is time to file taxes.
Tax season is not fun. There is nothing you can do in advance to make it a joyful experience, but that doesn’t mean it should be a painful one. As long as your records are updated and organized, you understand your deductions and tax credits, and you have kept your business finances separate from your personal finances, there should be no stress or confusion when it comes time to file.