Preparing for Small Business Taxes

The formation of a small business can be an exciting endeavor, but doing so does come with its own set of concerns and regulations.  By far the most important and complicated issues facing new entrepreneurs stems from the unique tax laws that specifically affect small businesses.  The process of filing taxes for small businesses differs substantially from individual taxes and the rules will change according to a company’s size, industry, employee base and much more.  Business owners that do not carefully adhere to these regulations will be subject to severe penalties, ranging from the confiscation of company property to years of imprisonment.  Fortunately, the process of filing taxes can be streamlined and simplified if the proper preparations are taken in advance.  Below, you will learn what you need to prepare for small business taxes.

Handling Expenses

Nearly every investment made on behalf of a small business benefits the company in two ways.  First, it plays its crucial role in the day to day operations.  Second, it provides a tax write-off.  When you purchase the tools, equipment and other essential items necessary to run your business, be sure to save the receipt.  When it’s time to file your taxes, each purchase will help reduce your overall tax debt.  This includes virtually all items, from computers to car mileage for business trips.  Some nonessential items though, such as a snack machine for the break room, are not classified as tax deductions.  Since profits are almost certain to remain low during your first year of operations, reducing your tax bill as much as possible is important in maintaining a successful company.

Accounting Software

Next, you are going to need some sort of record keeping software for your computer, or you can go with some type of cloud based accounting software.  This will include programs like Microsoft Excel and Intuit Quickbooks.  You should carefully learn the functionality and features of each program if you do not plan to hire an assistant from the beginning.  Each program will help you record your purchases, expenses and all other important tax information.  If you do eventually hire an assistant, you will also become better equipped to properly manage them if you learn these programs for yourself.  This information can be shared with your tax preparer to help expedite the process and possibly even lower the cost of filing your taxes.

Dealing With Employees

If you do hire employees, you should maintain copies of each record relating to their paychecks.  These records should reveal the total labor hours for each employee, their compensation, taxes they paid and any discrepancies that may have occurred.  These are some of the most important and difficult documents to maintain, so you should carefully implement a payroll record system before hiring employees.

Outsourcing Help

Although it is not required, an accountant is high recommended for new small businesses.  Maintaining the operations of your business will be a tedious in the beginning and something that you will likely have to do one your own.  By taking on the burden of managing your finances and taxes, not only are you potentially taking on more responsibility than you can handle, but you also become more prone to making mistakes.  Fortunately, you do not necessarily have to hire a fulltime accountant; many firms provide accounting services to small businesses on an “as needed” basis for a nominal fee.  Of course, it’s important to ensure the integrity of any such firm, as you will need to provide them with sensitive company information.  You can also look to outsourcing your accounting to a freelance accountant, but the same rules apply.