Taxes are not something most small business owners give much thought to. They are usually too busy running their business to be worried about it but there are things they should be doing throughout the year if they do not want to face a huge tax bill. There are federal and state taxes to think about and if you get it wrong your tax bill grows – it is as simple as that.
Have A System In Place
You can be as relaxed as you want with your own tax affairs but when it comes to a business you need a system in place to track your income and expenses. There are many online packages that will help you to do this.
Have a system that allows you to categorize your receipts. You want all your auto expenses separate from your capital expenditure for example, and you do need to keep every receipt or the expense can be disallowed.
For business related mileage, whether for yourself or an employee, every mile needs recording. Some people keep a diary of their business journeys, and others use the simpler method of using a mileage tracker like TripLog to save themselves the hassle. The time saved by such software also boosts productivity, thus saving even more money, too.
In the US, most income is taxable and most expenses you can claim tax relief on. There are exceptions as with every area of law, but generally, that is the situation.
You do have options on when you claim some costs and report some income. The purchase of company equipment can be claimed over 5 or 7 years but under certain conditions you can elect for claiming the entire expense if the first year.
Selling property is another area where the tax implications can get very complex, but there are options on which year to disclose parts of the income. Both of these areas are very complicated and it is best to take the advice of an accountant to make sure they are claimed for correctly.
Changes In The Law
There are changes in the law relating to tax every year, and you need to keep abreast of these if you intend doing your tax returns yourself. For accountants it is part of their job to always be up to date with these matters, and this is the reason why many businesses do not attempt to handle these matters themselves. For some it seems like an extra expense they do not need, but the amount of tax they could potentially save you could be far more than the amount of their bill.
Change The Structure Of Your Business
There are several different business structures in the US and what was right for when you started might not be the best option now. There is nothing to stop you changing the business structure, as some are more tax advantageous when you pass certain limits of profit.
There are some very common ways to reduce your tax bill such as paying into your retirement fund, deferring income till the following year, and accelerating expenses into the current year. It depends on the type of business you have, the size of your business and how much effort you are prepared to put into it, but it is possible to reduce your tax bill considerably.