It may be the first gorgeous day of fall, but it won’t be long until April 15 comes knocking. Be prepared for next year’s tax deadline by beginning your preparations today. That means, as a small business owner, now is the perfect time to begin organizing receipts, collecting owed payments and deciding on year-end purchases. Do it now, and you won’t have to dread facing it in the spring. And if the task seems too overwhelming, remember – we’re just a phone call away to help you get through it.
Clear Outstanding Invoices
Organization is king, especially for anyone who owns a small business. If you haven’t already, begin getting things in order by clearing any outstanding invoices. Make those collection calls to clients who’ve been slow to pay. Studies show that the longer you allow unpaid debt to linger on the books, the less likely you’ll be to ever receive payment. And here’s another tip: Hire a certified bookkeeper to make your collection calls. A certified bookkeeper understands the language of collection calls, and what you are and aren’t permitted by law to say. Keep yourself and your company out of the legal doghouse by letting a pro handle this end of the business. By hiring someone else to do the handle the collections, you’ll also have a buffer so you can maintain amicable client relations.
Understand Your Startup Deductions
Is this your first year of operation? If so, you may be able to deduct pre-startup costs such as the training of management and lower-level personnel; travel expenses incurred while locating distributors, vendors, and even customers; advertising and consulting fees, and more.
In most instances, it costs a lot to get a new business up and running. This is especially true if you’re building from the ground up. Talk to a professional CPA about which expenses you can and can’t write off for the year and do it now, before the big tax rush of spring.
See If You Qualify for the R&D Tax Credit
Does your business create things? Are you a developer? Do you work at improving products or services that are already in circulation? If so, you may qualify for a research and development tax credit that saves business owners millions of dollars annually. Many business owners qualify for this advantageous credit, but few claim it simply because they’re unaware that it exists. If you are in business, for example, to develop software, search for ways to grow increasingly organic produce, or are inventing a new kitchen cleaner that’s harmless to the environment, you could take advantage of this terrific perk. Check with an accountant to find out if your business qualifies.
Organize, Organize, Organize
Hopefully, your receipts aren’t a mess, but if they are, you’re not alone. Many small business owners find bookkeeping to be a daunting task. Sadly, it’s a necessary evil when tax time rolls around. Shoeboxes filled with scraps of paper receipts isn’t what your tax preparer is hoping to see come next spring, so take care of that organizing task right now. For best results, consider going digital and using cloud storage to keep receipts, invoices and bills organized. Your accountant will thank you come tax time.
Separate Business and Personal Expenses
Make sure you have a firm understanding of what constitutes a business expense before documenting it as such. According to the IRS, certain expenses are definitely deductible:
- Business use of your home
- Business use of your car
- Employee pay
- Retirement plans
- Rental expense on your storefront
- Insurance
- The cost of goods sold
There are other business deductions you may qualify to take as a small business owner, but it’s essential that you understand what they are. The differences between a personal and business expense may sound elementary, but gray areas exist that could cause confusion.
Basically, a business expense is the cost of operating a business. Advertising, overhead, and the cost of a plane ticket to travel to a business conference are deductible. Furthermore, keep your business receipts separate from your personal receipts from day one to avoid confusion and a potential tax audit.
Adopt the Correct Legal Structure for Your Business
Are you operating as a sole proprietorship or an LLC? Both have different tax laws you’ll need to follow. C Corporations and S Corporations do as well. Make sure your small business is operating under the right classification, and you could save significant tax dollars. If you’re unsure where your company falls regarding its legal structure, here’s a brief reminder:
Sole Proprietorship
This option will get you started right away, but it also leaves you completely open to litigation. As the sole proprietor of your business, you declare profits and losses via your regular tax return. This structure is the easiest one to set up.
Limited Liability Corporation (LLC)
As the owner of an LLC, you’ll have some protection from litigation. It’s easier to attract investors and gain capital as an LLC, but the formation of the structure costs money as well.
S Corporation
An S Corporation can issue stock to shareholders, though the amount is limited. There’s some liability from litigation, but this structure is complex to set up and maintain with reporting and paperwork required.
C Corporation
A C Corporation status gives you the most protection from litigation, but it’s also the most complex to maintain. You’ll file corporate taxes as a C corporation and much regulatory and legal reporting is required.
Don’t delay in preparing your company records for next tax season. Understand your allowed deductions. Know where your company stands legally. And most of all … get things organized ahead of time.
Thirty percent of all new businesses fail within the first two years, according to the Small Business Association. Disorganization and confusion regarding taxes don’t help. Call us today for help getting ready for tax season. Our friendly and professional staff is knowledgeable in tax law, and we’re standing by to answer your tax-related, small-business questions.
Sources:
https://www.tonyrobbins.com/wealth-lifestyle/the-smb-write-off-checklist/
https://www.nfcc.org/resources/blog/top-10-tax-preparation-tips-for-small-business-owners/
https://www.irs.gov/businesses/small-businesses-self-employed/deducting-business-expenses#personal
https://quickbooks.intuit.com/r/legal-taxes/pros-cons-every-business-structure/
https://www.investopedia.com/slide-show/top-6-reasons-new-businesses-fail/