Updated: Feb 15, 2022
Personal taxes can be complicated. Business taxes can be even more difficult. If you own private practice, tax time can be challenging. The livelihood of any company is at least partially dependent on its ability to meet the requirements of the IRS tax liabilities.
While taxes are rarely enjoyable or an interesting topic, they're a part of any business owner's life. Getting a handle on your business taxes can increase your income and help you avoid legal issues.
Check out these tax tips my accountant gave me that are helpful :
1. Keep your tax and financial documents for at least 7 years. If you're ever audited, you'll need those records. Any claims made at tax time require supporting documentation. Keeping good records is an excellent idea for any small business because it encourages organization. It is very difficult to reconstruct records at a later date.
2. Know your deadlines. It isn't all about April 15th. While most small business entities that are not professional corporations can wait until "tax day," C-corporations are required to file within 10 weeks after the fiscal year ends, which is normally December 31st, and S-corporations are required to file March 14th.
3. Understand your loans. The IRS doesn't classify most business loans as income. But the interest paid on loans is generally a deductible expense. It's important to have records regarding the use of any loans. It might be for office furnishings, office buildout or to finance some other activity (marketing, business start-up).
4. Know the different types of audits. There are several types of audits and some are more intimidating than others.
* Office audit: Generally this is a simple audit. You'll be requested to report to your local IRS office to resolve some discrepancies.
* Correspondence audit: You'll just be asked to send in a document via mail or fax.
* Field audit: These tend to be very thorough audits and they are conducted at your place of business. Ideally, your accountant will be present during this audit.
* Criminal investigation audit: You're suspected of tax evasion. Consult or retain a business/tax lawyer. Have your accountant talk with the lawyer ASAP.
5. Pay your quarterly tax bill. This is a common mistake. If you have an employer, your taxes are regularly taken out of your paycheck. If you're self-employed, you're required to estimate your tax each quarter and pay it. Failure to pay this can result in a significant tax penalty.
* You might also end up with a bigger tax bill than you can handle in a single payment. Make a habit of setting aside a portion of your profit each month in anticipation of paying your quarterly taxes. Consult your accountant to find out how much each quarter. Consider setting aside an additional 10% to cover possible underpayment of quarterly taxes.
6. Prepare early. The vast number of tax filers wait until the last minute. If you're expecting a refund, this can be the worst time to file. The IRS is overwhelmed with all the tax returns that pour in. However, this can also be the best time to avoid an audit. Preparing your tax return early leaves you time to find any missing documents and answer any questions.
7. If you have employees, avoid using taxes collected from employee payroll to pay business expenses. This common practice upsets the IRS greatly. When you withhold taxes, send them to the IRS! The best rule of thumb is to work with a payroll service that automatically deducts and sends these each pay period.
Taxes are a large expense for any business that shows a profit. It only makes sense to minimize that expense. Consult a tax professional if you have any questions or concerns regarding your business's tax situation.