Tax Tips for Small Businesses: 6 Dos and Don’ts for the Year Ahead
By Michael Hitchcock
The deadline to file business taxes has quickly come and gone, marking the end of another busy tax season for solopreneurs and small business owners. Now is the perfect moment to reflect on the lessons learned that you can apply in the future, or if you filed for an extension, think about steps you can take to get ready for when you do file.
Whether you’re a seasoned business owner or just embarking on your entrepreneurial career, building a clear tax strategy can make all the difference in navigating your business finances smoothly for years to come.
Dos and don'ts for staying on top of your business taxes
Do: Stay proactive throughout the year
We tend to pay close attention to taxes during the lead-up to the filing deadline, but it’s just as important to be diligent and stay proactive throughout the year. Consider processes and tools you can put into place, and any key learnings that will help you be more organized year-round.
Taxes are one of the biggest expenses of the entire year for most solopreneurs, so it’s equally important to keep track of them throughout the year to ensure you have enough free cash to pay what’s owed when the quarterly or annual deadlines come around.
Don't: Forget to reconcile
As a business owner, you're juggling many tasks daily, and it can be tempting to push off closing your books regularly. However, balancing your books will help ensure your data is accurate come tax time. Reconciling your financial transactions to your source documents can ensure that all expenses and income are counted only once and reported correctly.
In turn, this could help you minimize your tax liability and avoid potential penalties from the IRS, in addition to ensuring you’re making day-to-day financial decisions backed by accurate and up-to-date data.
Do: Consult with a professional
You’re used to wearing many hats when it comes to operating your business. But taxes can be complicated, and it may be worth focusing your time and expertise on other areas of your business and working with a tax professional throughout the year to help you navigate the complexities of the latest tax regulations and requirements. Working with an accounting professional can take more tasks off your to-do list as a professional can help with monitoring your financial accounts, categorizing your business transactions, and gathering necessary documents throughout the year so you’re prepared once tax season rolls around.
Note: it’s advantageous to engage with a tax professional before the tax year ends. Together you can uncover strategies—such as purchasing some needed equipment, for example—to lessen your tax burden while helping your business grow. The professionals keep a close eye on your business finances and the changing tax laws from year-to-year, so you can focus on your customers and grow your business.
Don't: Miss small expenses
While it may seem inconsequential to forget to log your last business lunch or subscription fee, these small expenses have the potential to accumulate and contribute to substantial deductions come tax time. The IRS recommends you keep all receipts for basic expenditures related to your business. It's not just a bureaucratic requirement—it's a strategic move to safeguard your financial interests.
That means if you’re tracking vehicle mileage, you’ll need to show a maintained mileage log, and if you’re purchasing office supplies, you’ll need to hold on to those receipt slips to maximize potential deductions each year.
Do: Separate personal from business
As your business grows, it’s not uncommon to overlook the distinction between personal and business finances. You may think, "It's all my money anyway, so why does it matter?" However, whether you’re a one-person business or have a larger business with employees, keeping your business expenses separate from your personal finances is crucial. You should open a business checking account with a debit/credit card and keep business and personal transactions separate.
Calculating business taxes demands a precise and accurate picture of all funds moving in and out of your business. In the event of an audit, all expenses and revenues from your business should not only be accounted for, but they must also show proof of a legitimate business purpose.
Don't: Overlook your different tax forms
Taxes can be a maze and filing them is not a one-size-fits-all approach. Requirements will vary slightly, and it all depends on variables like your business size, number of employees, your business entity type (C Corp, S Corp, sole proprietor, etc.), and your corresponding tax form (1120, 1120S,1040, etc.).
These variables can also affect your tax filing deadline, so understanding your appropriate forms will keep you prepared ahead of your submission date. Consider periodically checking the IRS website and tax calendar for official deadlines and information on the rules.
Stay on top of your business taxes year-round
Filing business taxes can be daunting for many—especially solopreneurs and new business owners. You’re not alone. Even with this year’s tax season behind us, it’s not too early to get your ducks in a row by preparing for the upcoming year.
With these year-round strategies, you’ll have a clearer understanding of the tax process and what you can do to stay organized, maintain your books, and find the right filing strategy that you can follow for months and years to come.
Small business taxes FAQs
What percentage should a small business set aside for taxes?
Knowing that small business owners need to pay both income tax and self-employment tax, they should aim to set aside about 30% of their revenue for federal and state taxes.
How can a small business maximize tax returns?
One of the best ways for small businesses to maximize tax returns is to account for deductible expenses like business equipment, supplies, and work-related car costs. Make sure to include less obvious items like interest, bank fees, licenses, and advertising on your income statement to reduce taxable income as well.
About the Author
Post by: Michael Hitchcock
Michael Hitchcock is the VP of product for core financial management services at Intuit QuickBooks. He has been with Intuit for nearly a decade, holding various leadership roles across the QuickBooks ecosystem. In his current role, he leads the team that builds core product experiences for QuickBooks across both SMB and accounting services, including tools that allow customers to manage their finances, make business decisions, and stay compliant. Before joining Intuit, Michael worked at General Electric as an electronics design engineer.
Company: Intuit QuickBooks
Website:
www.quickbooks.intuit.com
Connect with me on
LinkedIn and Instagram.
