Small business owners are busy putting all of their vigor into running their operations. It’s a tough task in the run-up to tax time to corral spending records, purchase orders, and everything else Uncle Sam wants.
“Your business doesn’t stop for a week so you can devote yourself entirely to taxes,” said Carolyn Katz, a former investment banker who now mentors with SCORE, a service the Small Business Administration set up to provide free advice to entrepreneurs.
Because of all the hunting that must be done, “Tax time can be completely overwhelming,” Katz said.
Best Approaches to Tax Time for Small Businesses
“This is a good time to be dusting off your tax plan,” said Brent Johnson, CEO and tax accountant at Clarus Solutions in Columbus, Ohio. Sometimes, though, Johnson said, “I get looks from small business owners like, ‘What is a tax plan?’”
Preparation and organization are key.
To help out, here are steps financial professionals urge small business owners to take:
Start early in the year by putting records in a place you will remember. This makes it easier to pull together all that has happened during the year.
Invest in accounting software to make it easier to track financials.
Periodically check where you are with inflows and outflows. Look at profit margins and even money in the bank to see if there is enough to cover taxes.
Stay on top of things. A weekly or monthly review of the books can be invaluable. This way there isn’t a pileup of data at year-end.
Think of non-obvious expenses — advertising, for instance. Outlays encompass anything from hosting a booth at an industry conference to buying business cards.
Tally up your get-togethers. Remember the customers and prospects you treated to dinner? Gather those receipts. The meals’ costs may be tax deductible. That’s if the meals had a business purpose and you didn’t get extravagant and dine at super expensive places. The IRS doesn’t like that.
Separate personal and business expenses. Make this a habit. It’s a nightmare to suss this out as you prepare for your tax return.
Remember insurance expenses. Think anything from workers’ compensation to limiting cyber liability.
Turn your passions into tax breaks. Environmentally aware Maegan Griffin, head of Nashville-headquartered skin treatment provider SkinPharm, finds tax credits by investing in green equipment. “Consider purchasing recycled, instead of brand-new electronics, and look into ways to use renewable energy,” Griffin said.
Go to the source. The IRS provides this guidance on its website:
- Make quarterly payments of estimated income taxes.
- Scour everything, from buying big equipment to seeing if dry cleaning costs are deductible.
- Review what you face in employment taxes.
- Have last year’s income tax documents at the ready.
Keep on top of developments and stay organized.
There may be some changes coming with the passage of The Inflation Reduction Act, adopted this past August.
The latest legislation been reported to provide $773 billion for such needs as helping to keep healthcare costs from rising as well as bolstering supply chain efficiencies. Small businesses will benefit, the agency’s website says.
So will the IRS, which is getting billions from the legislation. The funding is earmarked for initiatives like improving antiquated systems. And unless congress stops it the IRS plants to hire more enforcement officers and auditors which can be concerning to small businesses with limited resources.
Another Way to Be Secure
When you’re ready to pull the trigger and send documents to your accountant, or the IRS, make sure they cannot end up in someone else’s hands.
“Secure, encrypted document portals are cheap and easy to establish,” said Kevin Strait, managing partner at Anzen Legal Group in Ft. Collins, Colo. “Do not email financial records unless you have an encryption layer protecting those attachments.”
The Bottom Line
There are lots of considerations when it comes to tax time. But don’t lose sight of what’s also just around the corner.
Source: Centsai Accessed 2/7/23
This article’s view is the author’s and does not reflect the opinion of any member of CentSai’s management. The author is not being paid by any financial services company nor has been paid to promote any individual product or service. The author is not a financial advisor or a broker-dealer. The content above is education-only and any reader is encouraged to seek advice from a registered financial advisor before taking any action.Back