While no one loves to see tax day roll around each year, business owners definitely have a harder time of it than those who work for someone else. Filing business taxes accurately, and on time, can be an incredible undertaking, particularly if you haven’t been following a plan throughout the fiscal year. What should you know about planning for tax day to make things as simple as possible, while ensuring the utmost accuracy in your taxes? Let’s take a look at a few of the most critical considerations below.
Cover Your Bases from the Outset
Perhaps the single most important tip for business owners planning for tax day is this – make sure you have all of your bases covered from the very beginning. What does that mean? Simply put, you must know your obligations and requirements when it comes to filing taxes.
Are you filing as an S Corp? If so, you have very different filing requirements than a C Corp, or even a general sole proprietorship. Do you have employees? Do you have physical inventory? Do you have investors who receive disbursements throughout the year?
These are just a few of the myriad of considerations that you’ll need to make. It’s a lot to keep up with and still have time to run a successful business, though. That’s why most small business owners turn to tax preparation experts who specialize in business taxes.
Know Your Deductions and Take Advantage of Them
Like personal tax filers, business owners have access to a broad range of tax deductions. These provide you with important ways to reduce your tax liability and save money at the end of the year. However, you must be aware of them in order to take those deductions. If you’re not aware of them, you can’t deduct for them, which means you could be leaving a lot of money on the table for Uncle Sam when you needn’t have.
Make sure you’re deducting for business-related travel, automobiles, business-related entertainment, home office deductions, and more. If you’re not entirely sure which other deductions apply to your small business, work with a tax preparation expert to identify them and save your company some much needed capital.
Make Your Business Classification Work for You
Your business classification is much more than just a label slapped on to help identify your firm. It can be an important tax tool. When used correctly, it can actually help you save money come tax day. However, when used incorrectly, it can be an anchor weighing you down.
Are you filing as an S Corp? As a C Corp? As a sole proprietorship? As an LLC? As a partnership? Each of these carries different implications when it comes to paying your company’s income taxes, including both tax rates and liabilities.
Be smart when choosing your business classification and manner of filing to ensure that you’re maximizing your financial protection. Again, if you’re not entirely sure which classification works best for your firm, or how you’ll be filing in the first place, work with a tax professional to ensure that you’re not overpaying the IRS.
Work a Monthly Payment That Fits Your Finances
Many business owners find that they are unable to make their tax payment in a single lump sum without incurring serious financial damage to the company. There’s nothing wrong with that, and the IRS does offer some help. Perhaps the best option is to work out a monthly payment plan that allows you to pay down your tax debt without reducing your liquidity too much. That ensures you’re able to meet your obligations to the IRS, but also that you’re able to keep your company growing and moving forward.
You’ll find that the IRS offers a range of payment plans based on your specific needs and eligibility requirements. With that being said, pay close attention to the interest rate charged, or you could be paying a huge chunk of change in addition to your tax payment just for the privilege of making payments over time.
Be Smart with Your Actions
Think that you’ll need to file an extension on your company’s income taxes this year? Many business owners do, and they IRS accommodates them. However, many more file for an extension but are not granted one. You can increase your chances of getting an extension by making certain types of purchases before the start of the new year – real estate and equipment are the two primary purchase types to make during this time.
What you don’t want to do is create a cash windfall – avoid selling any of your company assets or collecting on payments until after tax time. This mitigates your financial situation and makes it more likely that the IRS will approve your extension. If they see that you’re flush with capital, then there’s no reason you shouldn’t pay your tax debt immediately, which does your firm little good.
Hire the Right Tax Professionals
The final tip is this – hire the right tax professionals. You have enough on your plate as it is, without having to deal with tax day planning. You need the right help on your side; choose an expert who can determine the right deductions, finding missed opportunities for limiting your tax liability, and guaranteeing accuracy throughout the process. Hire the right tax help and you’ll find that your tax-related worries are significantly reduced, while your firm is in a better position financially.
In the end, business taxes shouldn’t be a nightmare. Use the tips we’ve discussed above, and make sure you have qualified, expert tax help on your side throughout the year. You might just be surprised at how simple it can be to save capital while making sure that the IRS is happy at the same time.