Tax Tips for Small Business Owners

Tax Tips for Small Business Owners

by Brendon Pack, October 2019

Let's face it—taxes can be a huge distraction when it comes to running your business. The preparation process takes time and energy that you could spend working with customers and building your business, not to mention the strain on your time and resources.

tax tips

The National Small Business Association 2017 Small Business Taxation Survey reported that 58% of small business owners find that doing their federal taxes was their single biggest challenge. Payroll taxes and income taxes were especially deflating.

Well, taxes don't have to overwhelming. Here are some tips to help you become a tax ace.

Get Better at Tracking Income

A major factor in getting your taxes right is tracking your income. Unreported income is a red flag for an Internal Revenue Service (IRS) audit and garners some of the biggest penalties if you do happen to be audited. You want to make sure you report any and all income your business brings in.

Whether you use the cash or the accrual method of accounting, you'll want to make sure you record income as it comes in. To this end, having a formal accounts receivable process is invaluable. This process might include:

  • Sending invoices along with products sold or services rendered
  • Using e-billing to reduce payment times and paperwork
  • Including payment terms on invoices, with past due penalties clearly stated
  • Following up on unpaid invoices when they come due
  • Tactfully reminding customers with late notices
  • Turning unpaid invoices over to collections only as a last resort

Spending time with your books on a regular basis, at least once a week, will ensure you keep your income reporting up to date, allowing you to report accurate income on your quarterly or annual tax filings.

Don't Forget Your Expenses

If reporting income is important to the IRS, tracking expenses is equally important to the welfare of your business. You deduct business expenses from your gross income on tax forms, which allows you to reduce your tax bill significantly.

Some of the most common deductions include:

  • Cost of goods sold or services rendered
  • Advertising and promotion
  • Donations made for marketing purposes
  • Office supplies
  • Telephone and internet expenses
  • Rent & utilities
  • Real estate taxes and mortgage interest
  • Business use of your car
  • Business meals & travel expenses
  • Professional and legal fees
  • Professional development
  • Business interest and bank fees
  • Retirement contributions
  • Self-employed health insurance premiums
  • Salaries and benefits to employees
  • Capital asset depreciation
  • Qualified business income deduction

It pays to have a working knowledge of how the IRS applies each of these so that you can get all the deductions your business is entitled to. Keeping up-to-date logs of business mileage, travel expenses, and business meetings is also essential.

Master Technology

Some small business owners rely on simple spreadsheets to keep track of income and expenses. But chances are you will eventually need something more robust. Fortunately, there are a number of high-quality products available to help.

Some of the types of small business software you might want to consider to help make your tax workload lighter include:

  • AR/AP Software. Specifically designed for your accounts receivable (AR) and accounts payable (AP) departments, this software can take some of the sting out of tracking invoicing and expenses. The web-based platform, for example, makes AR and AP tracking a snap by putting your books at your fingertips no matter where you are.
  • CRM Software. Remember Rolodexes? Who uses them anymore? A better option is to store all your valuable data in a customer relationship management (CRM) platform. Software like HubSpot CRM or Salesforce CRM can help to keep you in touch with your customers and sell them the products or services they want.
  • Accounting Software. Convert your spreadsheets to truly interactive and reliable data with accounting software. Intuit QuickBooks has long set the standard for small business accounting software. FreshBooks and Xero have also been garnering high praise.
  • Tax Software. Platforms dedicated just to taxes can help you create more accurate filings incorporating the latest tax regulations. Software such as Turbotax makes filling out paper forms with a ballpoint pen a thing of the past.

Many products offer real-time assistance as well as cloud computing options that better integrate the data from your various business functions.

Seek Help From the IRS

While some small business owners view the IRS as an adversary, it's actually in the best interest of the IRS if you file accurate forms and pay your taxes on time. With that in mind, the IRS offers a number of resources to help small businesses with federal taxes. The IRS offers these tools:

  • IRS Small Business and Self-Employed Tax Center. This portal includes information for small business owners about business tax regulations, including:
    • Tax law updates
    • Instructions on how to handle various tax deductions
    • Extensive assistance with payroll taxes
    • Forms and updates
    • An online Tax Calendar with automatic reminders
  • IRS Virtual Tax Workshops for New Small Businesses. This interactive, online workshop is comprised of a variety of educational sessions, including:
    • How federal taxes for small businesses work
    • Steps for setting up and running your business
    • How to calculate and submit payroll withholding taxes
    • The process for setting up a retirement plan for your employees and yourself

Save Time and Money with a Professional

If you're like most small business owners, you spend upwards of 80 hours a year preparing your taxes. That's no small potatoes. Doing taxes can eat up a lot of time and money.

Hiring a tax professional to help you with preparing your taxes can take the burden off you and place it squarely on the knowledge and experience of someone who knows tax laws inside and out. Your taxes will be filed on time, and you'll enhance the bottom line of your business by taking all the deductions you can legally take.

Have questions for a tax adviser? LegalZoom provides access to tax professionals through a prepaid advisory plan. You get advice on an unlimited number of new tax matters, along with many other benefits for a low monthly fee. You also can sign up for a free tax consultation with 1-800Accountant directly.