How to manage your small business taxes
And just like that–it’s mid-year.
Before you know it, it’s going to be tax season in the blink of an eye. Tax filing has never been easy but with all the new rules implemented due to the pandemic, these next few years will surely be one for the history (taxation) books to tell. And it’s not going to get any better soon, especially with the proposed tax policy overhaul by the new administration. It’s critical, for these next years for you to be especially keen on managing your taxes.
Here are 3 tips to get you started.
The first step is always to think ahead. The best starting point is to keep clean and accurate books. Think: prevention is better than cure. Be aware of the tax deadlines. Your business has to pay estimated taxes, it’s better to mark the four quarterly payments on your calendar. Included in the planning is to keep a contingency fund to be prepared for any unexpected costs or any emergencies you might find yourself in. The pandemic is a great example of an emergency. Those businesses that were able to set aside some money for the rainy days were better off during the thick of it all. Of course, this fund would be separate from the money you set aside for your taxes.
Calculate your Tax Liability
Determining your tax liability will be one of the first steps you will have to accomplish. It’s probably the biggest chunk out of your tax management plan. And you have to work closely with your accountant on this. Each business is unique and so is its tax liability. There will be many considerations to determine when you are calculating your tax liability. Some of these include 1) business structure, 2) location, 3) asserts, and 4) the number of employees.
A business structure will determine the type of federal income tax you will need to file. The business location will determine what state’s tax is applicable since there will be varied tax implications per state. A fairly recent tax concern is the expanded sales tax which now takes into consideration substantial economic activity in a state to become liable. Is the state requiring you to charge and remit sales tax based on the state of origin or state of destination? These are some of the things you need to talk over with your accountant.
Moreover, the type of business asset, such as stock, equipment, property, will impact overall tax liability. Finally, a small business with employees will need to file employment-related taxes, while self-employed business owners will be liable for a self-employment tax.
Choose your financial expert
Most small business owners will hire an accountant to finalize the filing. Accountants help reduce the stress on the owner on organizing the books and filing taxes. They can offer services from estimated tax payments to asset depreciation. Investing in an accountant will be vital to the success of your long-term goals.
Seems simple enough: choose an accountant, easy tax filing. However, the choice that will give the most value to your business requires more consideration. For small businesses, you need to have an accountant who knows the ins and outs of the industry in which your business operates. You need someone who specializes in small business accounting and has the right experience working with businesses similar to your size and structure. Otherwise, you run the risk of creating misunderstandings and putting in the additional effort of teaching them about your business from square one.
Here at Mehanna Advisors, we make it our business to match you with the right expert. Our advisors specialize in small business accounting, providing you with up-to-date financial solutions from bookkeeping, all the way to filing your taxes. We’ve provided small businesses with ingenious tax solutions. If you have uncertainties in handling your taxes, don’t hesitate to reach out.