In the beginning process, there are a lot of parts of business ownership that can be easily forgotten. Don’t let taxes be one of those forgotten elements! Here are SIX important tax procedures to keep in mind as you start your business.
Keep good records of your purchases and statements before it comes time to file for your federal taxes.
By using an expense software like Quickbooks Online, you can very easily track and review your business expenses. QBO offers the feature to link your business checking account to the software, which saves you time from manually entering in expenses when you have time. You can avoid expensive errors and simplify the process of filing taxes by linking your financial records to the tax preparation software.
Actually review your Federal Income Tax Return
The next tax procedure is to actually review your federal income tax return. Tax returns are confusing to most people filing them, but it’s important that you review it with a professional to understand the how’s and why’s of your return. During the review, your tax professional can help you plan for the future. If you had a loss, they can suggest steps to prevent that in the future and make suggestions on how you can maximize your return in the future.
Understand the difference between employees and contractors.
Misidentifying the help you are getting can lead to many unfortunate situations. When it comes to tax time, employees receive W-2 Forms and freelancers receive 1099’s to detail each form of compensation. When the IRS reviews 1099s and sees that you have unreported income due to this very mistake, you will be in trouble. This is one of the most important of all tax procedures! Make sure you get it right.
Do your research on what can be claimed, and claim it.
If you are working from home, you can only claim an area for a home office deduction, if used solely for business. If so, the deduction can help you save on your taxes. Another possible deduction is your cars and the miles you drive. Use a mileage tracker to keep note of how many miles you are driving for your business. See this post to learn more about mileage trackers we recommend and how they work.
Keep accurate payroll tax records
Keeping payroll tax records is a preventative measure that all businesses must take. It is common for small businesses to be audited because the IRS has identified small business owners as the largest source of uncollected taxes.
Not being able to prove that you have, indeed, paid payroll taxes can land you in a sticky situation. At the very most, your business could be shut down, and you would be liable for major tax penalties. For these reasons, keep accurate records, in case of an audit, and be sure you pay all your taxes on time.
Know whether or not you owe sales tax.
You most likely will owe sales tax, unless you fall into a certain category, such as:
- You are a nonprofit.
- Your sales are all casual. Once your sales rise to the level of a business, you owe the taxes.
- In some states computers and accessories are tax-exempt. The computers, however, must be used to manufacture finished goods to qualify. An accountant can tell you if you qualify.
- Manufacturing sales are tax exempt if you process a product and resell in a different form. In that case, as a manufacturer, anything used in manufacturing is tax-exempt in most states. An accountant can help.
- Some services are tax exempt in some states.
We have written many posts about sales tax implications, common mistakes, Nexus, and more on the SalesTaxSupport.com blog that can be found here.
If you have further questions or clarifications, feel free to contact us here.