Take Little Steps to Avoid Big Tax Mistakes

Small business taxes can be a tedious burden or an effortless exercise. The key to this transformation is putting the right strategies in place. Here are three.

Mind the Recordkeeping Details

A precise process for recording business expenses is essential to maintaining accurate tax deductions. Having an organized system ensures that bookkeeping is continuously accurate.

For example, income tax reporting necessitates classifying all ordinary and necessary business expenses in specific categories. To achieve this, a checking account and credit card dedicated exclusively to business purchases are crucial. Resist using these for personal expenditures. That creates a bookkeeping mess to clean up at tax time. Take recurring draws from the business account to a distinctive personal account for your non-business spending.

Check stubs or memo lines on check images should convey the appropriate business expense category for immediate recording of the correct bookkeeping category. If you happen to spend personal cash for a business expense, account for these immediately before losing track of the transaction or its categorical purpose.

Additionally, maintain a mileage log for business travel with your personal vehicle. The business may reimburse you for some vehicle expenses. Do not have the business pay for all your personal automobile expenses and expect this to qualify as a business tax deduction.

Put the Right People on Your Team

A qualified bookkeeper will ensure that you have complete records throughout the year. This professional should examine financial statements at least monthly to clarify any uncertainties. Then, at tax season, your books will be ready on time for your tax accountant. This has the added benefit of allowing an analytical review of expenditures to determine areas where you can reduce costs to improve profit.

Avoid the temptation to handle reporting of business taxes yourself. Income tax rules change and the logic applied to some expense categories does not apply for tax purposes. For example, the cost of fixed assets is generally deducted as depreciation over several years, but is not required in all instances. Don’t jeopardize valuable deductions by failing to rely on professional tax preparation for your business.

Be Proactive with Payments

Having an organized bookkeeping system and valuable people on your accounting team are only part of the commitment to streamlining small business taxes. The final element in the design is your resolve for proactive tax-related action. Never miss a tax filing deadline. Late-payment penalties are harsh, and late-filing penalties are even more severe. Remember, filing an extension for submitting a tax return does not extend the due date for paying your taxes owed.

Last, the amount of taxes should not come as a surprise. Your tax accountant can estimate the expected tax on your business profit when you keep accurate records throughout the year. A minimum amount of tax should be remitted during the year to avoid a penalty for underpayment of estimated tax. Even if you file your tax return and pay taxes by the due date, failure to remit estimated tax payments will trigger a needless penalty.

Your bookkeeper and tax accountant can help you avoid neglecting this important issue.

 

Financial Spring Cleaning Projects for Your Small Business

The arrival of spring stimulates feelings of renewal that inspire projects at home and in the garden. This stimulus should pour over to neglected areas of our small businesses. If best practices have recently gone on holiday for your business enterprise, start your spring cleaning by tackling these basic tasks.

Establish goals: Springtime is ideal for establishing your business goals in writing. Your daily tasks in the months ahead should focus on meeting these goals. Evaluate what you want to accomplish this year and consider what you need to do to achieve those results. Start dreaming and create some larger goals for the more distant future. Accomplishment of long-term goals starts with a strategic design outlined on paper.

Review accounting practices: Close examination of accounting reports is a key element in springtime business improvements. Regular scrutiny of financial data is key to diagnosing your small business. Get started with a little help from your bookkeeper or accountant to obtain and evaluate valuable financial reports. End guesswork about the profitability of various types of services or products you sell. Know the tax liability you’re incurring on profits throughout the year and review costs to ensure funds are being maximized to their full potential.

Clean up tax bills: Always paying your taxes on time is a crucial spring-cleaning measure. It avoids penalties and allows you to focus on what lies ahead. Even if you receive an extension on the deadline for filing your tax forms, proceed immediately with completing your tax return. If you still owe some unpaid tax, late-payment penalties are accruing right now.