Tips on How to Manage Taxes for Small Business

Tips on How to Manage Taxes for Small Business
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Do you run a small business?

If so, tax season can be tough. Running a business has both rewarding and challenging aspects that can put you down in an overwhelming situation.

Especially, the taxes are the most challenging part of the business. Taxes are always a headache, especially when you're just starting. Fortunately, there's lots of information online to help ease the burden and pay your taxes on time.

Filling the taxes for your small business will take a huge portion of time with complexities that can leave you scratching your head. But doing the taxes does not necessarily have to be complex. Filing the taxes is an essential part of your small business.

On the other side, avoiding taxes is also not a recommended step for your small business.

The last thing you would want is to get your business on a tax cheat list.

Furthermore, if you want to ensure the smooth running of your small business, proper tax management is essential. It involves both tax deductions and payments.

The sales tax can make a difference in how much people spend on an item. Sales taxes are pretty high by US federal standards and for any other country's standard as well. The rate varies from state to state. The federal sales tax is one of the most complicated taxes in America.

It's levied on a variety of goods and services. Incorporating some tips to manage the taxes will help you make the proper tax payments.

With that said, let's discuss top tips on how to manage taxes for small businesses.

1. Save Your Purchase Receipt

In the long run, one of the best tips for managing the taxes that can benefit you and your small business is saving the receipts.

In today's modern world, recording every expense is critical to ensure long-term success. Most business owners never pay attention to their purchase receipts which end up in their tax payments.

Even if you purchase the necessary items for your business, it is essential to save every purchase receipt. Or if you want to avoid the hassle of keeping every purchase receipt, you can use a business expense tracker app instead where you can scan your receipts and safely keep it in your records. 

But how exactly the purchase receipt will benefit your business taxes?

To answer this, let's discuss the tax returns for small businesses.

Every business involves some expense that consumes a significant chunk of its revenue. Authorities have established exceptions for business expenses, which qualify as the tax deductions in the annual tax payments.

It means that your day-to-day purchases like office rents, publications, and transport are tax-deductible.

Moreover, the tax-deductible do not offer the money back as dollar bills.

But instead, it reduces the total amount of taxable income.

2. Research the Small Business Tax Credit

Tax credits are another tax incentive for small businesses that also offer deductions for your small business tax. These incentives offer dollar-to-dollar reductions for your final tax payments.

For instance, your final tax bill is $1000, and you have a $200 tax credit. Your actual tax bill will be $800. To achieve these tax credits, you must offer employee incentives like health insurance and a retirement plan.

You can also consider help from the tax professionals to identify which aspects of your small business can qualify you for the tax credit.

3. Apply for Home-Office Deduction

Ever since the dawn of the pandemic, small businesses were disrupted with a new norm of work-from-home.

The concept of traditional brick-and-mortar storefronts is long gone, and most consumer groups are taking their purchases online.

If you are also running your business from your home, you might qualify for a home-office deduction. The overall process of this tax deduction is a little tricky, but it can save you some money.

To calculate the home-office tax deduction, you need to measure what is used as the office and multiply the square footage by $5.

Moreover, you will need to calculate the expenses consumed by the portion of your home and multiple them with a home-office deduction.

It is worth noting that your home office must not be multi-purpose and strictly used for small businesses. However, you can easily set up a curtain to divide the room and consider it the home office for your small business.

4. Set Up Retirement Plan

Setting up a retirement plan will also benefit your small business with numerous perks.

Despite the size and number of employees, you can easily start a retirement plan to maximize the savings from the tax deductibles.

Since the process involves contributing to the retirement account, you can consider any IRA or 401(k) plan.

If you are a solopreneur, then you can set up a one-participant 401(k) account. This account will come in handy after withdrawing the amount from the retirement plan.

5. Change Your Business Structure

Most small business owners limit themselves and never consider bringing change to business structure.

It is essential to choose the right business structure that will allow you to save on taxes. This process will ensure positive growth of the business in the market while also saving some money on the go.

Since your income tax is set on the individual tax rate, the taxation department can cut 15.3% of the earnings from your solopreneur business.

However, if you consider the S corporation, you will significantly cut down on payroll taxes.

6. Using Tax Software

When it comes to small business taxes, the use of tax software should never be overlooked.

The ease of organising taxes and handling key documents such as a w2 form provides incentive for small business owners to utilise online tax related softwares in order to streamline their accounting process.

Employing tax software is one of the most effective strategies to easily and quickly calculate your tax deductibles without considering the assistance from the tax professionals.

Moreover, this technologically advanced software will also benefit your small business to cut down on legal fees, cutting out the expensive charges lawyers can have to create tax documents for you and submit them.

Final Words

The world of business tax is indeed complex, but being lazy for that part can put you in a lot of trouble.

However, putting these tips into practice can save you money and carry over the losses during the pandemic disruptions.

You can also consider tax professionals to get assistance and advice for your taxes and keep a safe side from the penalties.