Everyone wants to become an entrepreneur, but managing a business is no cakewalk. There are a plethora of responsibilities waiting to welcome you. From recruiting a proficient team, overseeing marketing practices, and managing finances – things are already hard without adding the complexity of taxes. Unsurprisingly, every person and company has to pay taxes by deducting a chunk of money from profits or income. The question is, why do we pay taxes?
Even though we don’t have a choice, but the concept behind it can make us feel better. As you need money to run a business, the government needs funds to manage the country. Thus, they make people pay for the expenses to keep the country running smoothly. And to keep things fair, they follow a progressive approach and link it with your ‘earned’ income. Thus, if your company is making big, you have to foot higher taxes, whereas, on slower days, the taxes would be low too.
Alongside paying taxes, you have to apply for file returns, give proofs of your incomes, and whatnot. If you wish to ensure effective management, have a look below. Here are six smart tips for financial experts for managing taxes.
1. Claim Your Tax Refunds
If you are actively paying taxes, move to the next step, and claim your tax refunds. However, refrain from indulging in any illegal practices by trying to claim more income that you reported. The internal revenue system already has a copy of the tax forms that you submit every year. Therefore, you have to ensure the report to IRS matches the amount of income mentioned in the tax-paying documents. After all, when operating a business, it is imperative to familiarize yourself with all filing protocols. Hence, enroll yourself in an online llm tax program and educate yourself on all the jurisdiction’s corporate tax rules. If you’re in sectors like hospitality, you could even use tax guides for hospitality businesses to understand tax rules and how to claim your returns.
2. Maintain Records
You have to keep thorough and accurate records all year round to ensure adequate tax returns. These records help the authorities determine if your request is genuine. If you end up leaving deductions on the table, it can raise questions on the credibility of the business. The authorities can put your company under additional audits, halting the business operations. If manual records are exhausting resources, invest in accounting software. They are user-friendly, inexpensive, and helps you keep track of all income and expenses.
3. Classify Your Business
Are you running the company alone, with a partner, or have investors on board? If you fail to classify your business, it can result in overpayment of taxes. Decide if you want to run a business as a sole trader, corporation, single-member LLC, or a limited liability partnership. All these classifications have different taxing protocols. Sole traders have to compensate income tax instead of corporate tax, while companies have to pay taxes on every dollar they earn. It is vital to consult an attorney to determine which business classification is ideal for managing taxes.
4. Manage Payroll
Taxation is not straightforward, especially when you are running a company. Alongside paying corporate tax – the tax payable on profits, you have to make income tax deductions from employee’s salaries. The payroll taxes work differently, but once you figure out the tax filing and learn math, it is pretty straightforward.
Calculate the gross pay of employee after deducting social security benefits, medical care, and retirement funds. Sum up all the withholdings, expenses on reimbursements, and apply the tax percentage. Besides, you don’t have to do this for every employee separately, feed details in the accounting systems, and automatically make all calculations.
5. Identify & Track Business Expenses
You have to calculate the taxes on your income after deducting expenses. If you track business expenses, you can easily spot patterns and categorize your expenses to reduce taxable income. Therefore, list all your expenses in the income statement – advertising, business supplies, gas, insurance, travel, etc. It saves you from the burden of high taxes.
However, don’t make the mistake of mixing up personal expenses with business. If the IRS finds this error during the audit, it has the authority to look into your account details because of amalgamated money. Honestly, this can happen unintentionally, but the IRS doesn’t accept excuses. Get a separate bank account, credit card for your business, and use it for nothing but business expenses.
6. Remember the Crucial Tax Dates
Tax rules are the same for everyone. If due to any professional commitments, you missed the deadline, there is no going back. Therefore, understand when filings are due since last-minute filing procedures can cause trouble. Learning the tax dates will let your plan ahead, making sure you are not missing out on any essential document. Here are some of the deadlines you should know.
- Income tax filing deadline for payroll and if you are a sole trader. Remember, e-filing has different timelines.
- Tax return deadlines.
- If you want more time, apply for a deadline extension beforehand.
- There are other payment deadlines, such as a pension, and social security benefits, etc.
All the dates are available on the tax jurisdiction’s website. At the start of every year, mark your calendars with the critical deadlines, and stay ahead of time.
Most business owners understand the equation of tax payments but are clueless about filing procedures. It is imperative to learn the tips and tricks to ensure that tax compliance removes one of the most significant barriers. It aligns your business practices with the law, helping you concentrate on other crucial operations. Thus, before jumping into conclusions, familiarize yourself with tax protocols and see your business climb the stairs of success.