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.
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.
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)
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:
There are two basic tax concepts small business owners need to know, business expenses and capital expenses.
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.