Taxes, especially business taxes, can be complicated. If you’re an independent contractor, freelancer, or creative, tax time can be challenging.
The livelihood of any small business is at least partially dependent on its ability to minimize its tax liability, while meeting the requirements of the IRS.
While taxes are rarely an enjoyable or interesting topic, they’re an inevitable part of a small business owner’s life. Getting a handle on your business taxes can increase your income and help you avoid legal issues.
The following tax tips are helpful for any small business looking to stay on top of the tax game…
Tax Tips for Service-Based Business Owners
1. Keep Receipts.
Maintain good records (physically or digitally) throughout the year as it’s very difficult to reconstruct records at a later date. Doing so assures the IRS that your deductions are valid.
Any claims made at tax time require supporting documentation. So keep your tax and financial documents for at least 7 years.
If you’re ever audited, you’ll need those records.
Plus, keeping good records encourages organization.
2. Pay Estimated Taxes.
When you’re an employee, taxes are regularly deducted from your paycheck.
Self-employed individuals, on the other hand, are required to estimate their tax each quarter of the year and pay the IRS directly. Failure to pay can result in a significant tax penalty.
In order to avoid a huge tax bill requiring a single payment, make a habit of setting aside a portion of your profit each month in anticipation of paying your quarterly taxes.
3. Prepare Early.
Try not to wait until the last minute to complete your tax return.
Getting your paperwork filed on time, or better yet early, leaves you time to locate any missing documents and answer any clarifying questions from your tax preparer.
4. Automate Record-Keeping.
Consider utilizing a simple online bookkeeping system to keep track of your income and expenses for the year.
Many of these apps allow you to upload receipts, connect bank account information, generate important forms, and analyze data over a specified period of time.
Welcome better accuracy and more streamlined records.
5. Know Deadlines.
For many, April 15th isn’t the only deadline to keep in mind.
While most business entities can wait until “tax day,” other entities have filing requirements that fall on other dates throughout the year. Know what dates are essential for your business.
Keep in mind, too, dates for local taxes such as state and county.
6. Get Help.
Depending on the complexity of your business finances, hiring a full-service tax professional to prepare your tax return might be a good idea.
For many freelancers, independent contractors, and creatives, the peace of mind that comes from working with an expert that specializes in their particular industry is worth every penny.
It’s also helpful if any legal issues arise.
Keep These Tax-Saving Tips in Mind
Taxes aren’t an anxiety-inducing issue if you’re proactive in managing them. You owe it to yourself and your business to minimize the expense of taxation.
Consult a tax professional if you have any concerns and questions regarding your tax situation.