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If you’re starting a business, it’s easy to assume that you may be overwhelmed with how to handle your taxes. You’re not alone! Small businesses can follow a number of tax tips to realize tax relief and handle taxes the most efficient, forward-thinking way possible. Read on for a few of these tips, which can be followed throughout the tax year:
Decide which type of business entity you are establishing, as each type reports its activity on a different form. Furthermore, the type of business you are establishing will determine the types of taxes you’ll pay, such as income tax, self-employment tax, excise tax and employment tax.
Be aware that offering fringe benefits to your employees rather than standard pay raises can reduce tax burden.
Keep close track of all business expenses throughout the year and record them as quickly as possible. Accurate records will not only help with tax preparation, but will also help you track your progress and prepare financial statements. Be sure to keep these records organized as it will make tax filing at the end of the year easier.
Pick an accounting method and stick with it. The most common accounting methods include the accrual method (report income in the year you earn it and deduct expenses the year you incur them) and cash method (report income in the year you receive it and deduct expenses the year you pay them).
Check if your business requires a federal Employer Identification Number for tax purposes.
Know that vendors or outside contractors who you’ll pay more than $600 will require 1099-Misc forms, so plan ahead.
When faced with unsold or unused inventory, think about donating them rather than storing that inventory, as donations can lead to tax deductions.
Be sure to keep business and personal expenses separate.
Know you can deduct up to $5,000 your first year in business, as the cost of launching a business is considered capital expenses. Also, you can deduct educational expenses that maintain or improve skills needed in employment.
Familiarize yourself with the 2010 Small Business Jobs Act Tax, which offers scores of ways to find tax relief.
Above all, it’s essential to continually educate yourself on small business tax laws and all of the ways in which you can find tax relief. Tax professionals well versed in small business are a fantastic resource for any small business, whether that business is in its first or fiftieth year of operation.
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