If you’re looking for a more profitable tax season, consider implementing some popular tax strategies for decreasing your tax liabilities. Many of them are time savers and will reduce your anxiety during tax time. Most importantly, they comply with tax laws, so you don’t have to worry about an IRS audit. They also save you money and ensure a profitable return. Consider implementing them now, for you won’t regret it.
Track Your Expenses and Keep Receipts
Failing to keep current financial records is a big mistake that many small businesses make. Maintaining proper records and tracking expenses is the initial step towards an accurate filing. As an entrepreneur, it’s important to be diligent in organizing and retaining receipts for all transactions that relate to your business. Purchasing gas, business vehicles, cartridges, and lunch for staff are all business expenses that should be tracked. Initially, small expenses may not seem important, but over time they add up. Within a year, the average business owner can generate hundreds or thousands of dollars in small expenses.
By properly organizing your receipts, it saves time. It can also save you a lot of money. If saving all those receipts seems overwhelming, you may want to consider installing an expense tracking app on your cell phone. It makes the whole process a lot easier. Remember, tracking expenses also have additional benefits. You’ll always have a clear financial picture as to how your business is operating and what immediate financial adjustments are needed.
Register Your Business
If your business is not legally established, you cannot benefit from any of the financial deductions offered by the government. Filing the incorporation documents as quickly as possible is not only sensible but also economical, as some states impose fees for filing late. You have the option of deciding how to structure your business. You can incorporate as a corporation, sole proprietorship, or LLC. If you’re not sure which entity works best for you, do some online research on the advantages and disadvantages of each one.
Become Familiar with All Potential Deductions
Unfortunately, you have to pay taxes. The upside to having a business is there are a lot of deductions for small business owners. These deductions can significantly minimize your tax burden. However, you will have to know what these deductions are and how to use them. Ultimately, this can be the most important strategy for having a successful tax season.
First, you want to make sure the appropriate expenses can also serve as a deduction. Some items like supplies, software, and equipment are authorized deductions. Clearly, a car that was purchased for a family member or friend is not an authorized deduction. Also, take caution with large deductions. Make sure that it complies with the IRS’s guidelines because it may trigger the IRS to flag your return.
Separate Personal Expenses from Business Expenses
Maintaining accurate records is essential for claiming all authorized deductions. Therefore, it’s vital to keep your personal expenses separate from your business expenses. An easy way of handling this is to maintain separate filing systems and bank accounts. Avoid using your business account for personal use and vice versa. It can complicate things should an audit occur. Remember, a business account is a basic requirement for obtaining a business loan and building business credit.
Include Spouse and Children on Payroll
Many small business owners don’t realize the tax-saving advantages of having their children on payroll. For example, businesses are not required to withhold payroll taxes for children under 18 years of age. Additionally, you can still use the standard deduction against your income. If you want to grow your retirement savings, consider adding your spouse and designate the extra earnings towards retirement.
By taking advantage of these five tax tips, you can decrease your tax liabilities. With good record-keeping and organizational skills, each tax season becomes less stressful. Consider working with a financial advisor or an accountant to maximize profits and minimize losses. Many of them have years of experience in producing profitable incomes. If you’re just starting and you don’t have the financial resources to hire a financial advisor or accountant, do some online research, but make sure the information comes from a replicable source.
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