With so many rules and regulations, small business owners spend a lot of time each year on tax preparation. But, still many feel as though they have left money on the table.
If you are determined to maximize your tax refund this year, try using these quick tax planning tips.
5 Money-Saving Tax Preparation Tips for Small Business Owners
1) Your Business Type Affects your Tax Burden
The type of legal entity a small business chooses can impact how much it pays in taxes. Whether you choose a sole proprietorship, an S-corporation or something else, you will encounter certain benefits and limitations. For example, S-corporations, which have fewer than 100 shareholders, are subject to lower corporate tax rates.
2) Don’t Overlook any Possible Deductions
In the tax code, there are many different types of small business tax deductions you can take advantage of when completing a tax return.
Expenses incurred before your business began operating can be written off, including:
- Researching markets
- Analyzing products
- Training employees
These deductions are only available up until the creation of a viable business entity.
The miles traveled to complete business activities is also deductible. Other costs such as oil, tires, parking fees, lease payments and insurance are also eligible.
Petty Cash Purchases
Petty cash purchases, such as magazine subscriptions, educational classes and other small expenditures, are frequently overlooked by business owners in tax preparation.
3) Remember to make Estimated Payments
Self-employed small business owners are required to make quarterly estimated tax payments accurately and on time throughout the year if they anticipate they will owe the IRS more than $1,000 in a given year.
Startup founders, however, do not have to make estimated tax payments during their first year of operation.
4) Don’t Forget to Pay the Self-Employment Tax
Small business owners may also have to pay the self-employment tax. This payment for Social Security and Medicare taxes includes both the portion paid by the employee and the employer.
In tax preparation, business owners should remember they can claim half of the self-employment tax as an income tax deduction.
5) Keep Records up-to-date
Really, the only way for small businesses to avoid missing opportunities for tax deductions is to always keep records accurate and up-to-date. It’s helpful to spend time each week to review your accounts, such as receiveables, payables, credit cards and transactions.
If you have any other questions this income tax season, consult a tax preparer.