Preparing Your Taxes: Tips for Entrepreneurs

The only things certain in life are death and taxes. If you are a business owner, then it is death, taxes and more taxes.

We need to do our personal taxes based on the income after doing our business taxes. Personal taxes are a cakewalk compared to business taxes, especially if you have employees, inventory and unpaid accounts receivable or payable. But there are some things you can do to make the process easier.

Know Your Dates

Unlike personal taxes, which have a filing deadline of April 18 this year, business tax reporting has a laundry list of dates and tasks. Many of these depend on the nature of your business, type of employees and manner of organization. If you have employees, then the IRS requires quarterly reporting. If your business is incorporated, then annual reporting generally happens in October. The fishing and farming industry has reporting requirements in January, but food services are not until February. Since missing a deadline can lead to inaccuracies and potential fees, it is best to know them well in advance. The IRS has a nice calendar to help.

Get Organized

Save every receipt. If you can, scan your paperwork and upload it to an off-site cloud backup so they are safe and you can work on them from anywhere. Being organized is the greatest stress reliever that you can have while handling taxes. If you reconcile your bank accounts monthly and handle your bookkeeping weekly and quarterly, annual reporting should be a breeze.

Understand Employee Taxes

When looking at the IRS date calendar, you will notice that employee taxes come up often. Employee tax errors are the most common and most costly error you can make. First, the IRS has strict guidelines on the proper classification for employees and contractors. Some employees must be paid overtime pay, which has an associated employer portion of taxes, while others are salaried and do not earn overtime. Contractors are not employees and there is no employer tax contribution. Getting these wrong can lead to huge penalties and, in extreme cases, prison time.

Know the Problem of Incorporation

Sole proprietorship, partnerships, limited liability companies (LLC) and corporations are some of the most common ways to structure your business entity. Each has its benefits and problems. As a sole proprietor or a partner, you can blend your personal income taxes with your business income, listing yourself as self-employed. The downside is that you lose the legal protection that comes with LLCs or corporations.

In a corporation, you will do taxes for the business and personal taxes. This means that you pay taxes on the business earnings, then pay taxes again on the money that your business paid you. Set up your business structure with taxes in mind to make your life easier.

Create Financial Statements

Completing your taxes is not the goal of your year. It is one part of a greater business operation. You should use the momentum of tax reporting to create financial statements for your company. Financial statements are composed of an income statement, balance sheet, statement of equity and cash flow statement. They will give you a look into your company’s financial health and are the single most important document that you or your accountant can generate. Think beyond the tax season to create a thriving business.

 

This article was provided to The Guinn Consultancy Group, Inc.  Certain links to pages outside this posting are created for the convenience of the reader.  The Guinn Consultancy Group, Inc. receives no compensation for these links.

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