Filing business-related taxes can often be a complicated and time-consuming process, especially for new entrepreneurs. Small business owners need a good understanding of the federal, state, and local taxes that must be filed. Tax types can range from income, employment, excise, and sales.
It is critical that business owners are prepared for success long before tax season. Here are three steps to managing your small business taxes.
1. Find the right counter
Most small business owners hire an accountant to make sure all tax returns and payments are done correctly. Accountants help reduce the amount of time business owners spend on taxes and reserves. Generally, an accountant’s services can range from estimated tax payments to asset depreciation, and this investment in your business is vital to your long-term success. Accountants are constructive partners to your business and are essential members of the broader support team. There are many accountants on the market, but small business accounting requires specific expertise. Be sure to prioritize those who specialize in small business accounting, especially those who have worked with companies similar to their size and structure. The best place to get recommendations is from other business owners. Talk to similar or local businesses for specific recommendations.
2. Determine your tax liability
One of the first conversations you will have with your accountant will be to determine your tax liability, which will guide how you file and pay your taxes. Each business tax liability is unique and is based primarily on four factors: 1) business structure, 2) location, 3) claims, and 4) number of employees. The structure of a business will determine the type of federal income tax that a business must file, and states and communities require businesses to file different types of taxes. Additionally, the type and amount of business assets (i.e., inventory, equipment, property, etc.) can affect a company’s overall tax liability. Businesses with employees will be required to file employment-related taxes. Self-employed business owners will be required to file a self-employment tax.
3. Think ahead to avoid common mistakes
Beyond hiring an accountant, companies can do a few additional things to avoid some common mistakes. For example, most small businesses will have to pay estimated taxes. Be sure to mark your four quarterly estimated tax payments on your calendar each year. Also, keeping accurate records is good business practice, but it also helps when filing tax returns. Finally, business owners must be prepared for the unexpected. Make sure you have an emergency fund that can be used to cover unexpected costs associated with the business throughout the year. However, business owners must fully protect the income you set aside for tax purposes and not include it as part of the emergency fund.
There are many additional resources available online, but be wary of resources that direct you to a specific product or service. Be sure to check the Small Business Administration (SBA) Guide on what companies must do to present correctly. For more information and resources, see the Small Business 50+ Resource Center at smallbizrc.org.