For small business owners, year-end can signal a time of relief. Hopefully you’ll have a busy, successful fourth quarter, and spend some holiday time with family and friends.
But year-end also means tax season is right around the corner. The good news? There’s still time to prepare and find ways to trim your tax bill.
Getting your taxes in order in advance not only helps reduce stress, it can save you money and let you focus on growing your business. Read on for some small business tax tips to make this tax season a smooth one.
It’s easier said than done, but whether you take care of taxes yourself or hire a tax professional, book time well in advance. Especially when using outside services, it’s never too early to schedule.
A check-in before year-end can help you find ways to reduce your tax bill while you still have time. Planning ahead also helps determine if you might need an extension on your filing deadline. If you need to locate missing records or resolve any issues before filing, this time will be valuable.
If you haven’t yet, hiring a trusted accountant or tax professional can provide the peace of mind that comes when you know your business finances are in good hands. Even in the early days of a small business it can make sense to start a relationship with a professional. Smaller businesses or startups might not need the help, but as your business grows, you could soon find yourself in need of professional advice and assistance.
A good accountant can help you with everything from navigating the complex world of business taxes to balancing your books. A great accountant could become more of a trusted small business advisor who has your best interests in mind. They’ll advise on financial matters but also often help you with bigger questions and overall business strategy.
A thorough, organized, and prepared approach to taxes can lead to savings and more resources to grow. Documents pile up quickly, especially as tax forms start to arrive. When you’re focused on managing and growing your business, it’s easy to lose track of hard copies and digital files.
Details about income, cost of goods or services sold, and expenses will all be needed. These can include a wide variety of bank statements, property records, receipts, forms, files, last year’s information, log books, credit card statements, and many other documents. While files vary by business size and scope, the sooner you get organized, the smoother tax season will be.
Using last year’s taxes can be a good place to start to create a specific checklist of what might still be needed for this year. Organize as soon as possible to ensure printed and digital receipts, statements, forms, and files are in order.
It’s best to track your business expenses and transactions early and often, with original documents organized by category or date, or however your system works. Especially for larger deductions, like medical bills or travel, keep copies of all receipts, insurance reports, tickets, and anything else to validate them.
In the event your file is scrutinized, having the original documentation attached to your return or easily accessible could help prevent further examination.
An auditor might require you to produce bank statements for all accounts, so while having original receipts is important. Context and clarity can also be helpful. Consider keeping a detailed log throughout the year to assist with business travel and entertainment deductions, for example.
If you’re a new small business owner, here are some small business accounting tips to get started.
Do you run your business from home? Here are six tax tips for home-based businesses.
Get Familiar: Deductions
Navigating the sea of business tax deductions can be confusing at the best of times, but small businesses can treat this as an opportunity: find any and every way to legally pay as little tax as possible. You deserve to maximize the value of as many deductions as you can, and should avoid paying unnecessary tax.
Giving gifts to clients over the holidays? You can deduct up to $25 per person per year for business-related gifts. Do you have a home office? There’s a simplified option based on square footage that reduces the recordkeeping burden of the standard deduction.
Small business owners sometimes claim the wrong deductions, claim the wrong amounts, or miss valuable deductions entirely. Many deductions are underused, so get familiar here with the big list of business tax deductions.
Specific Tax Tips
Take advantage of depreciation breaks and the maximum Section 179 instant depreciation deduction for eligible new and used business assets, which is $500,000. Businesses can expense up to a fixed amount of the total cost of new and used qualified assets purchased and placed in service this year.
This covers a wide range of new and used business goods, from equipment and machinery, to furniture and technology. Some real property improvement expenditures are eligible, too, so see if your business can take advantage. Section 179 deduction rules can be complicated, so consider consulting your accountant or tax professional for a full breakdown of options.
It’s also possible there are deductions your small business qualifies for that you’re unaware of, especially if your business or relevant legislation has changed in the last year or two. Stay up-to-date on your tax responsibilities and opportunities, because Congress sometimes extends tax breaks or changes laws that could affect your business.
For a detailed summary of essential tips to plan and save on your taxes, read NFIB’s 2016 Small Business Tax Guide. It includes five tax deductions you don’t want to miss and a full to-do list.
Update Records Through Year-End
Business income, deposits, and expenses should all be tracked closely, especially if you’re juggling business and personal finances. Being able to account for all of your legitimate deductions can add up to significant tax savings.
Take time to update your records before year-end and consider if there’s anything overlooked. Lots can happen in a year of business, so the sooner you ensure your information is up-to-date and ready for next year, the better.
Calculate your income and quarterly estimated tax payments year-to-date. Have you over- or under-paid? If so, consider decreasing or increasing your January fourth-quarter payment.
If you anticipate being in the same (or lower) tax bracket next year, deferring income to next year while increasing deductible expenditures this year can help maximize current deductions and move part of your tax bill from this year into next.
If you’re wondering how to best organize or defer your income and manage deductible expenditures through year-end, consider these great tips from MarketWatch.
Manage Taxes Regularly
Like anything time consuming or frustrating, if it’s spread out over a longer period of time it tends to be easier. If you manage taxes regularly, it will be less of an annual annoyance. This helps make taxes less complicated and can create opportunities for you to make strategic tax decisions based on how your business is doing. Timing is key when looking to optimize your tax bracket and maximize money-saving options.
Schedule regular tax document updates, stick to your schedule, and consider a midyear checkup with your tax professional.
Reviewing business income and expenses regularly might reveal an opportunity for a change in strategy, and when tax season comes, you’ll have less of a burden if you’re thoroughly prepared.
Take Advantage of Technology
From cloud storage to mobile business, streamlining day-to-day (and quarter-to-quarter) tasks are an app away. Many small business apps help you minimize time consumed by tasks and leave you more time to focus on growing your business.
Cloud accounting software helps you assess your financial position in real-time and make accurate forecasts, which is especially important at tax time. Accessible from a computer, tablet, or even smartphone, cloud software integrates bank statements and allows you to enter expenses as they occur so you don’t have to sift through a stack of receipts at reporting time.
And if you deal with piles of receipts, many apps allow you to simply take a photo with your phone, then categorize and build expense reports on the go. Some link to email, too, so you can send, receive, and categorize them with ease.
Here are some helpful websites, apps, and digital tools for home-based business owners.
Also check out six apps to get your small business finances under control.
As a small business owner, confidence and clarity about your finances can relieve a big burden. The tools and resources exist to help you succeed, but it’s up to you to determine the best fit for your needs.