5 Essential Tax Preparation Tips for Small Business Owners

Small business owners have been filing taxes independently for years and for many reasons. Many business owners feel that no one knows their business better than themselves, and filing their taxes allows them to review their books without outside influence.

If you’re looking to file your taxes on your own this year for your small business, you will want to ensure you have your books in order. Before you get started, also make sure to follow these five tips.

Know Your Tax Requirements

As a business owner, staying current on your tax requirements is important. Typically, the end of the year is an excellent time to review any changes that may have occurred. This allows time for new laws to be reviewed and analyzed and allows you to review these changes before filing.

There are, of course, some key things to be aware of.

  • You need to pay federal income tax on your business and personal income.
  • Depending on your location, you may also be required to pay state and local taxes.
  • You must pay federal payroll taxes on your employee’s wages to cover Medicare and Social Security.
  • You’ll also need to pay state unemployment taxes for your employees. You’ll typically be required to pay the state and/or local government sales and use tax.

By staying on top of your tax requirements, you can ensure your business complies with all the applicable laws.

Check Your Bookkeeping

Good bookkeeping is essential to any business. By tracking profits and expenses, you can save time when filing taxes and potentially save money.

Specifically, carefully tracking your expenses will allow you to more easily determine which tax breaks your business qualifies for. Tax breaks or “write-offs” can significantly lower your taxable income, so take the time to review and organize your books in the final months of the year. 

Make sure to note expenses that might qualify for tax write-offs and create digital copies of any physical receipts so you don’t lose them. Well-organized expense reports will not only help you to quickly fill out your tax forms, but they will also come in extremely handy in case of an audit.

Take Advantage of First-Year Bonus Depreciation

The First-Year Bonus Depreciation is probably one of the most valuable tax cuts available to business owners. As a result of the Tax Cuts and Jobs Act, you may get a 100% first-year bonus depreciation on certain assets you purchase and use before the end of the tax year.

If your business needs to invest in new equipment, it makes sense to plan the purchase for a year when your tax burden is expected to be high. With careful planning, it’s possible to use this tax deduction to reduce your total tax bill down to nearly zero. It’s one of the major corporations’ most common strategies to reduce their tax burden.

However, be aware that buildings and their structural components are not eligible. And you must start using whatever you buy before the end of this year.

Check Your Eligibility for Other Tax Credits

Before the end of the year, you should check if your business is eligible for any other tax credits. Tax credits are incentives the government offers businesses to benefit the economy, environment, or any other important matter. They are often designed to incentivize behavior such as creating clean energy, reducing waste, creating jobs, or other items that the government has deemed will benefit society as a whole.

If your business qualifies, these credits can help reduce the income tax you owe to the federal and state governments and, in some cases, even get a tax refund. For example, one such credit is The Work Opportunity Tax Credit, designed to help those with more difficult obstacles to finding employment. If you hire people who usually face barriers to employment, you may be eligible for this credit.

A number of tax credits are very specific to particular industries. Manufacturers of construction products, for example, will typically be aware of a much different set of tax credits than a restaurant owner. While there are thousands of tax credits, it is generally recommended that business owners and their tax staff at least become familiar with the tax credits that are most commonly used in their industry and keep up with new credits that they could qualify for. Often it is possible to see big savings from just a small amount of (likely deductible) capital investment.

Look For Other Potential Tax Deductions

Additionally, you should ensure you understand tax deductions, also known as tax write-offs. Such deductions can help to significantly lower your taxable income.

Tax deductions might now give you as significant a discount on your taxes as tax credits, but they can still produce a lot of savings. Furthermore, deductions tend to be a lot more common. They are often added to the tax code to benefit a majority of business owners or simply to stimulate the economy at large. This means that they tend not to be industry specific.
Look for deductions related to your payroll. Many deductions are offered to employers willing to provide on-the-job training, jobs to underserved populations, and even to employers offering healthcare benefits.

Of course, if you become overwhelmed with filing on your own, visit us at Nine Line Accounting. Our staff has years of experience helping business owners with everything from tax reviews to tax filings. We can even help to train you and your staff to do your own bookkeeping and basic tax documentation.

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