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Tax Time: 7 Important Tax Filing Tips for Small Businesses

Were you aware that businesses are required to file taxes? Small businesses are some of the most important businesses, but many owners are unsure of how to file their taxes.

Tax Time: 7 Important Tax Filing Tips for Small Businesses

Filing business taxes is similar to filing personal ones, but you’re required to report much more information. If you don’t file them properly, you may be fined.

Fortunately, following a few small business tax tips will ensure that you do everything correctly. Not only will you report the correct information, but you’ll also save both time and money.

All you must do is sit down and come up with a plan for tax time. From there, you can incorporate several strategies to make the process simple.

Read on to learn about 7 tax filing tips for small businesses!

1. Hire an Accountant

One of the best things you can do when it comes to filing taxes is hiring an accountant. An accountant can take care of most things, letting you focus on the core of your business.

Accounts typically overlook your income and expenses to help you create a budget. They also file tax-related documents that’ll be sent to the IRS. When hiring one, you can avoid filing things incorrectly because they’ll know what needs to be done for your type of business.

2. Report All Necessary Income

Many businesses, especially smaller ones, struggle to file taxes because they’re unsure of what to report. When a business receives a 1099 form, the IRS receives a copy. They’ll see exactly how much you’ve made, so you must report the amount shown on that form.

Those that aren’t needing to file form 1099 NEC must still report the exact amount that they’ve earned. This will ensure not only prevent you from getting fined, but it’ll also prevent you from paying the incorrect amount on taxes.

3. Keep Financial Documents

Out of all the small business tax filing tips, one of the best we can give you is to keep all financial documents. If you’ve never filed taxes as a small business, be prepared to reference a plethora of documents that show your income and expenses.

Keeping everything will make it much easier to file your taxes because you can see exact amounts. Aside from that, you’ll avoid running into problems if the government requests documentation.

4. Separate Business and Personal Expenses

To make filing taxes as simple as possible, you must separate business and personal expenses. This often isn’t an issue with larger businesses, but independent contractors and sole proprietors struggle with this.

Separating the expenses will prevent you from getting confused when trying to figure out how much you’ve spent. It’s also much easier to get information because you can look at a list of purchases without spending time figuring out which ones were personal.

The best way to do this is to use a separate checking account for your business. Whenever you produce bank statements, only business-related transactions will appear.

You should also open the account at a different bank instead of the one where your personal account is.

Beyond this, you must also remember that the way you handle tax returns as an employee and an employer differs greatly. For example, if you own your own business but still work for someone else on the side, you will not only have to complete your business tax forms but also a W2 form on which you report your annual wages and the amount of taxes withheld from your paycheck by your employer. To make this process easier, you can now create w2 forms online, saving you time and effort so you can focus on the more complex filing related to your business.

5. Know What Net and Gross Income Are

Understanding a few finance-related terms will go a long way when filing taxes.

Looking at the tax forms, you’ll see sections in which you must list your net and gross income. Many people get these confused with one another or think they’re the same thing.

Gross income is essentially the entire amount of money you’ve earned during a period. Net income is the amount you keep after making deductions for things like taxes.

When looking at a record of all transactions, you can see how much your net income is by adding everything together and subtracting purchases, payments, etc.

6. Outsource Payroll Management

Managing payroll requires a ton of time, so it’s best to outsource payroll management if you’d like to ensure success. If you’re not careful, you can pay employees incorrectly and get sued. Aside from that, you’ll end up filing taxes incorrectly and will face hefty fines.

While many businesses seek tax filing tips, small business owners often neglect outsourcing payroll management. Keep in mind that you’ll have an extra business expense, but it’s worth ensuring that everything is being done correctly.

Outsourcing payroll management will give you more time to manage other parts of the business. You’ll also know that employees are getting paid without having to manually write checks or spend time setting up a payment system.

7. Make a Good Business Plan

Any time you want to use small business tax tips, you should create a business plan to reference when doing them. A business plan will help you think of ideas and put them in action so that you’re prepared for tax time.

When creating a business plan, you should start by thinking about what your goals are. From there, you must come up with steps to accomplish them.

If your business is young, think thoroughly about how you’ll approach filing taxes. Put all of the info in your business plan so that you don’t run into problems.

Now You’re Ready for Tax Time

After reading this article, you now have a better understanding of how you can make tax time easier for your business. We encourage all small businesses to follow these tax filing tips because it’ll ensure that everything is filed correctly.

Should you file something incorrectly, ensure that you reference your financial documents. Working with an account will prevent you from ever listing the wrong information, so consider hiring one as soon as possible.

Check out our other articles for more tax filing tips!


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