Tax and Record Keeping Tips for Your Small Business

Small business owners face a great deal of challenges, but taxes always appears at the top of the list. Small business owners need to make sure they are paying what they should and taking the appropriate deductions to reduce their taxes.

Protect Your Business
No matter what stage of business you are in, it’s a good idea to consult a professional tax advisor. A knowledgeable tax advisor can save you both time and money as well as endless problems and hassles from the Internal Revenue Service.

Most small business owners turn to qualified Certified public accountants (CPAs). CPAs have been trained in business accounting procedures. To find a qualified CPA, check with other small business owners or contact your state’s CPA association. The American Institute of CPAs (AICPA) offers a listing of state CPA associations.

Pay Your Taxes Quarterly
If you’re a sole proprietor, which means you solely own an unincorporated business, the federal government requires you to pay income taxes each quarter. The federal government does not recognize an LLC as a classification for federal tax purposes. An LLC business entity must file as a corporation, partnership or sole proprietorship tax return. You must pay federal income tax, along with Social Security and Medicare taxes, known collectively as self-employment tax. Tax laws change frequently; contact your tax advisor to determine how much you should set aside. Read more: IRS Publication 505: Tax Witholding and Estimated Tax and Tax Calendar for Small Businesses and Self-Employed (Publication 1518)

Keep Good Records
Keeping well-organized records ensures you can answer questions if your return is selected for examination or prepare a response if you receive an IRS notice. As a small business owner, you should keep all your tax records for a minimum of four years.

Examples of important documents business owners should keep include:

·         Gross receipts: Cash register tapes, bank deposit slips, receipt books, invoices, credit card charge slips and Forms 1099-MISC

·         Proof of purchases: Canceled checks, cash register tape receipts, credit card sales slips and invoices

·         Expense documents: Canceled checks, cash register tapes, account statements, credit card sales slips, invoices and petty cash slips for small cash payments

·         Documents to verify your assets: Purchase and sales invoices, real estate closing statements and canceled checks

Take every LEGAL deduction you can
There are two basic tax concepts small business owners need to know, business expenses and capital expenses.

·         Business expenses are the cost of conducting a trade or business. These expenses are common costs of doing business, and are usually tax deductible if your business is for profit. According to the IRS: To be deductible, a business expense must be both “ordinary” and “necessary.” An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is helpful and appropriate for your business.

·         Capital expenses are the costs of purchasing specific assets, such as property or equipment, which usually have a life of a year or more and increase the quality and quantity of products and services. There are two ways to deduct capital expenses. You can “depreciate” them by deducting a portion of the total cost each year over an asset’s useful life; or you might be able to deduct the cost in one year as a Section 179 deduction.

Purchase Small Business Accounting Software
Small business accounting software saves you time compared to handling the books manually and is usually more efficient than using a simple spreadsheet because it reduces or eliminates redundant data entry. Narrow down your preferred accounting software choices by making a list of the features you need to run your business ranging from Inventory management, sales tracking, payroll, and tax reporting. Word of mouth referrals can be a valuable tool so talk to other small business owners and inquire what software they use and ask about the pros and cons.

Some well known accounting software: QuickBooks series by Intuit, Simply Accounting and Peachtree Complete Accounting Software by Sage Software, and Cougar Mountain Software.

Note: The Internal Revenue Service offers a Virtual Small Business Tax Workshop, composed of nine interactive lessons designed to help new small business owners learn their tax rights and responsibilities.

Source: https://www.score.org/blog/2015/rochelle-robinson/tax-and-record-keeping-tips-your-small-business