What You Need to Know About Business Back Taxes & Tax Debt

6 Essentials for Managing Your Small Business Tax Deductions

Small Business Tax Deductions
Written by fritzie

The IRS annually collects over 3 trillion dollars worth of taxes from businesses, estates, and everyday people.

If you own a small business, you are going to be contributing to that tax pool if you’ve made any profit during this past year.

For new business owners, the process of filing taxes can be daunting. You may be looking at your businesses tax rates and are shocked by how much you think you owe or are overwhelmed by tax filing procedures.

Take a deep breath.

There are lots of deductions your small business can take advantage of to bring down your taxable income levels and managing your taxes as a business owner isn’t as hard as it looks.

To help you on the road to understanding small business tax deductions and to help you get organized, our team here at Tax Relief Professionals put together this blog post.

Below are 6 tips for managing taxes and small business tax deductions!

1) Keep Track of Your Expenses

When people talk about tax deductions for small businesses, the conversation generally steers towards expenses.

Expenses for your business can embody a wide range of things. Travel, office costs, utilities and more. Keeping detailed records of your expenses can help you save big during tax time!

When filing your taxes, you’ll have the opportunity to itemize small business expenses. If you’re a sole-proprietor, you’ll do this on a schedule C form.

These expenses can get deducted from your taxable income and will bring down your taxes owed.

As an example of what can be considered an expense, say you work in a spare bedroom in your house. That “home office space” is tax deductible.

The simple way of calculating home office deductions is by determining the square footage of your workspace and multiplying the number by 5. The result is the dollar amount you can deduct on your taxes.

Portions of your home’s utilities used for the operation of your home office can get deducted as well. Think internet, electricity, water, etc.

Figure out all of the business tax deductions you’re entitled to by talking to an accountant to save big come tax season!

2) Stay On Top of Quarterly Payments

People are quick to think about all of the small business deductions they can get on their taxes but don’t really consider penalties. Did you know that self-employed people are usually required to make quarterly tax payments?

Also, if you fail to make quarterly payments, the IRS may impose fees on you.

Be sure to know when quarterly taxes are due for your business. Mark those dates on your calendar to ensure you don’t let a due date float by.

3) Start Separating Tax Dollars Early

It’s easy to forget that the income you’re making is subject to taxes when nobody is taking deductions from your paycheck. In order to help you remember and plan your spending habits better, separate your estimated taxes as soon as possible.

For example, look over your small business tax deductions each month and subtract that from your total monthly income. That number should give you your taxable income.

Take that taxable income and set aside a percentage of it each month. This percentage should adhere to your local, state and federal tax obligations.

Most professionals generally recommend setting aside more than less if you’re not sure exactly what your tax obligations are. If you send too much to the IRS, when you file your taxes at the end of the year, you’ll receive a refund.

4) Keep an Income Ledger

We talked about keeping records of potential business tax deductions earlier. It’s also important to keep a proper income ledger.

There is no standard for what an income ledger should look like, but it should itemize all of the income you receive in a given month as well as your expense amounts.

A basic form of a business income ledger could be an excel sheet with an income and expense column. You should have a sheet for each month.

Whichever way you choose to itemize your income and expenses, do so in a way that is accurate. Remember, your business’ clients report to the IRS how much they pay you each year. If the income you report in your ledger varies from what your client says they paid you, you could get penalized by the IRS.

5) Have an Auditing Schedule

Even if you’re diligent about keeping track of your business income and small business tax deductions, mistakes can get made.

To help prevent errors and getting into trouble with the IRS later, schedule audit sessions.

Audit sessions are similar to reconciling a checking account. Basically, you’ll look over a month again. During this process, you’ll ensure your income got recorded in full and accurately. You’ll then do the same for your expenses.

Finally, make sure your taxable income or “profit” is added correctly for the month based on your income and expense numbers.

6) Consult an Accountant as Soon as Possible

Most people think to talk to accountants once a year when taxes come due. Because of the increased complexity of business taxes, you’ll likely need to engage with an accountant year round.

An accountant can make sure you fully understand your tax obligations. They can also help you maximize your small business tax deductions and save you additional money.

Bottom line, taxes can get messy. If you make bookkeeping mistakes early in the year it can be hard to untangle them later. A tax professional’s guidance can save you a lot of time and a lot of money.

Wrapping up Small Business Taxes and Small Business Tax Deductions

Having a small business can be a liberating experience. Unfortunately, taxes can be more complicated then what you may be used to working for someone else.

Understanding the deductions you’re entitled to, staying on top of quarterly payments, and engaging a tax professional are all tips that will help you maximize your deductions, avoid an IRS tax audit and reduce your tax time headaches!

Our team here at Tax Relief Professionals specialize in providing small businesses and regular people with information on how to get out of tax debt. If you’re a business who owes back taxes, read more on how to find your way out here!

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fritzie

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