Three Tax Tips for Small Business Owners
For many small business owners, tax time can be a stressful season. Most entrepreneurs are not accountants or finance majors, and the technical jargon associated with many tax forms can bring on anxiety and a splitting headache. Before you resort to massive quantities of chocolate and an aspirin overdose, however, there are a few tax tips you can follow to keep your business on track for an accurate tax return.
Think Taxes Year Round
It may be preferable to shelve this stressful topic until late February or early March, but you can save yourself a lot of trouble if you keep tax issues in mind throughout the year. Make personal finance and business decisions with taxes in mind. Try to understand what the tax liability or benefit of each major decision will be. Ensure you keep a record for any major purchase, especially if you will claim it on your return as a business expense.
Be Reasonable and Rational
One of the troubles many small business owners fall into is claiming elaborate and unreasonable expenses in order to get a tax break. This is the way of the fast-and-furious audit, and you should avoid it. Business expenses can only be claimed on your return if they are necessary and ordinary. This means the expense is standard to your industry and necessary for the functioning of your business. New tires for a taxi company would meet this requirement. New tires for a freelance writing business would not.
Use Electronic Reporting
If you have ever tried to complete a small business tax return based off of a pile of paper receipts and a handful of spreadsheets, then you probably did go through a bottle of aspirin. There are many easy to use accounting programs available to small businesses that make day-to-day operations, as well as tax time, a much more efficient endeavor. QuickBooks® is one of the most notable programs and offers options for payroll, business expense reporting, and inventory generation.
Tax time does not have to be a tremendous burden for your business. In fact, if you handle your finances in an organized and professional fashion throughout the year, you may find yourself with plenty of free time around the tax season. If you use a professional accountant, you should be able to simply hand him or her a few files and a stack of receipts before turning your attention to your next business project.