As a business owner and established CPA, I tend to know a few things about how business and finances are so intimately intertwined. Many people do not realize how one decision about your business can have negative or positive impacts on your taxes. Running a business can be rewarding and daunting, but when you layer in the intricacies of tax, it really becomes a new level in the ball game. You should not let taxes scare you, if you are prepared and know what to do or who to contact.
So for this blog, I want to walk you through some of the top tips for small business taxes, many of which I have followed myself and these tips have also helped keep many businesses in order and operating on the right side of the law. Let’s unbox the top 5 tax tips you should be implementing in your business.
I know this sounds like a shameless plug, but hear me out. You definitely want to hire the right accountant because it is so integral for you to be able to fully focus on your business and let the accounting professional handle the financial side of things.
The accountant should not just be someone you interact with just once a year when you file your taxes. You will want to have a good relationship with the firm as well as stay in communication with them rather routinely. Accurately preparing your financial statements, tracking your business’s expenses and income, while making sure you don’t have cash flow issues, are just some of the things a certified professional accountant can do for your business and your team.
Even as a first-time business owner, working with a professional that you can trust can be the difference between the survival and the growth of your business within the first few years.
If there is anything you can begin to implement in your business starting right now, it is to keep your personal and business expenses separated. Co-mingling your funds is absolutely the worst decision you can make for your business.
The IRS can begin to look at your personal accounts because of the mixed monies even though you have accurately reported your business accounts. The only way to truly avoid this is to have separate business and personal accounts. What is meant for the business should be run through the business. Separate business checking, savings and credit card accounts is the way to go. It helps to keep everything clean and accurate especially should you find yourself on the other side of an audit.
Retaining all records for your business is also a critical step in ensuring that your small business taxes are accurate. This is where using accounting software will come in handy. There are no shortages of accounting software to choose from, but depending on your business’s specific needs, you will want to research which product will best serve your business. Also, in working with your accountant, they should be able to point you in the direction of a reliable product they use and trust.
Another reason to keep adequate records is that you want to make sure you are not leaving money on the table in the form of deductions that your business can take to lower your tax liability. Lastly, and probably most importantly, keeping solid records is your best defense against an audit, should you get audited.
Something to take into consideration when you first are starting your business is to properly choose your business entity. There are a number of entity types you can choose from such as LLC, Sole Proprietorship, C Corp, S Corp and many other variations.
Depending on your selection, the type of taxes you or your business will have to pay, can greatly differ. For that reason, it is very important that you speak with a CPA and or an attorney to ensure you are in the best business entity for your business. For those who have already established their business entity type, it is not too late to get it changed. It is not impossible but can be cumbersome, so it is best to make the best business classification the first time around.
Ensuring you report all income to the IRS, will be a great way to avoid a future headache. Reporting all income is important, but having that income match with what the IRS knows you received is even more important. Failing to report the income to the IRS is surely a red flag and a quick way to get an audit. The same rules for state and federal should apply as well. You should try to do everything in your power to avoid giving the IRS a reason to audit you and that includes reporting all your income correctly.
Of course, there are many other important tips one should consider when operating a small business and wanting to establish best practices surrounding taxes. The name of the game is to avoid the audit. At the end of the day, you will want to be armed with everything legally possible in the event of an audit.
Running a business can be filled with ups and downs, but working with a professional firm such as Accolade Accounting, can truly put your mind at ease. Being able to be accessible, accurate and timely is something that Accolade Accounting prides itself on. We always keep our clients top of mind and knowing your business is our top priority. So as you’re looking to work with a firm or CPA, that may not be the best fit for your organization, I challenge you to ask yourself, “Are You getting the Accolade Advantage?”
Until next time my friends,
Cheers!
JD Longino, CPA
