Tax time is around the corner and you can hear the collective groan of small business owners, start-ups and established firms who have to sort out their financial records for the previous financial year. It’s a hassle finding out how much they may have to pay the government at the end of the financial year. If you are a new entrepreneur, it is wise to seek the advice of a reputed tax advisor who can help with filing taxes. However, there are a few things that you need to keep in mind in regards to small business taxes that will make the prospect of filing taxes less intimidating.
Small Business Tax Tips for New Entrepreneurs
Here are a few tax tips for the rookie entrepreneurs to stay out of trouble with the Internal Revenue Service.
- Hire experienced and reputed help – If you are a new entrepreneur, it is advisable to get the help of an experienced tax advisor. However, if you feel it is going to add to your business overhead, consider appointing a competent accountant. He can help you with your tax planning strategy after going through your account books, balance sheets and financial projections. A good accountant can help you minimize your tax liability.
- Your account books should be current – Good bookkeeping makes it easier to file your taxes. All your financial data should be current and up-to-date in one place. During the initial stages of your business, it is important to get your book in order. However, if you are not able to do so, then hire an independent contractor as your bookkeeper.
- Do not forget to save all receipts – It is worth mentioning that you can deduct legitimate business expenses from your taxable income. Therefore, it is wise to keep track of anything that you purchase for your business, even if it costs you less than $75. You can either file your receipts or keep a separate logbook that contains all transactions. This will make work easier for your accountant at the time of filing your taxes.
- Ask the freelancers and independent contractors to file Form 1099 – If you have hired freelancers and you pay them more than $600 during the tax year, then the IRS requires you to file Form 1099. Therefore, it is mandatory that you obtain personal information such as current address, social security number and employment identification of your freelancers and contractors. Ask your freelancers to fill out a W-9 if their compensation is less than $600.
- Forward your new address to your former employers – If you have recently left your job to start your venture, remember to give your current address to the HR department. You cannot file your taxes without W-3 forms. Ensure that you get the forms by the end of January before your personal tax returns are due.
- End of the year strategies – If you have some extra cash at the end of the financial year, you could opt to purchase additional supplies which could be used at the beginning of the next year. If you have a cordial relationship with some clients, you could request them to wait till the start of the next year to clear their dues. This will decrease your overall cash flow and convert into lower taxes.
Rookie entrepreneurs should try using online financial tools for bookkeeping and sending invoices. Most of the tools are available at no cost. Keep in mind that your business operations and marketing strategies form the foundation for your business tax strategies.
Flickr image by 401K
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