Being a small-business owner is both rewarding and challenging. One of the biggest challenges for many is getting through tax season. In my two decades as a professional bookkeeper, there are a few common sticking points for business owners when it comes to their taxes. Here are five tips to help get you take on tax season like a pro.
If you’re hazy on taxes, you’re not alone. The tax terms and the forms can be complicated. In my two decades as a bookkeeper, I find many of my clients know very little about how taxes work. Even worse: They’re afraid to ask questions fearing they’ll sound unprofessional or uneducated.
Being self-employed, you should get familiar with two particular tax forms – Form 1040 and Schedule C. If you don’t have an accountant who can sit down and explain these forms to you, consider hiring one for an hour to discuss which forms are best for you.
Pay Quarterly Estimated Taxes
The most common question I hear from my clients is, “How can I save money on my taxes?” Every business owner wants to avoid a big tax bill. Incurring tax debt can be crippling as penalties and interest rack up quickly, and getting out of the tax debt cycle once you’re in it can be difficult.
The best way to avoid a major tax headache is to pay estimated taxes every quarter. Estimated taxes are based on last year’s income, so if you’re having a banner year and sales are rising, be sure to raise your tax payments accordingly. A good rule of thumb is to save 20% of all deposits.
Set Up a Bookkeeping System
Good bookkeeping will make filing your taxes much easier. With accurate numbers to work with, business owners can avoid errors and get the most out of deductions. If you don’t have an accountant, there are bookkeeping apps that can help track and manage your business activity.
Get the Right Support
From friends and family, having a strong support circle is important for any business owner. The circle should also include professionals you can rely on. Having a good relationship with your accountant and financial advisers will keep you confident in your decision-making. Ask for referrals from friends and other small-business owners.
Don’t Ignore Retirement Savings
Even if retirement is years away, don’t neglect to start saving for it today. Just like you pay rent, labor and utilities, be sure to pay into your retirement. Talk with your tax professional about a retirement account that can provide you with tax savings, such as a SEP (self-employed pension), SIMPLE IRA or solo 401(k).
Making these small changes now can save you money and make tax season less stressful.
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