Friday, January 31, 2014, PM | Leave Comment
One of the most challenging tasks that small businesses have to take on every year is preparing for and filing their federal income taxes.
As getting all of your financial documents organized and staying compliant with the ever-changing tax code can be a significant challenge, there are five tips that all small business owners should follow to ensure that they are able to manage their taxes as well as possible.
Organization is Key
The first tip to follow to properly manage their business’s taxes is to get organized. Before you even start the process of preparing your taxes you first need to ensure that you have all of the necessary paperwork that you need to prepare your taxes.
Some of the basic information you will need will be revenues journals, invoices for your expenses, and reports from your payroll service provider to prove your payroll expenses.
If your business happened to finance inventory, working capital, or another purchase, then you should also organize all of your bank statements as well.
Once you have all of these documents organized should plan some time in which you will spend time doing your taxes in a quiet and comfortable environment.
Freshen up on Tax Law Changes
Another tip you should follow to get ready for the upcoming tax season is to freshen up on The recent tax changes.
The current tax code for businesses is very confusing and has many quirks which cab change significantly from one year to the next.
Because of the frequent changes to the tax code, there may be some deductions and credits that you qualify for this year which may not have been available last year.
You should spend some time researching tax code changes and how they could impact the tax liability for your business.
Research Audit Red Flags
The third tip that should be followed to help your manage your small business’s taxes would be to research and get an understanding of what are the most significant audit red flags.
While audits are not necessarily anything to worry about if you have filed your taxes correctly, the auditing process can still be a very stressful and challenging one.
An audit can take weeks to complete, which means that you will have to spend more time working with the auditor, which is then less time that you can spend focusing on your business.
While getting audited is somewhat due to random draw, there are some red flags that could show up on your tax return that would increase the risk of being audited.
To avoid being audited, you should become aware of these red flags to avoid being picked out by the IRS.
Consult With an Accountant
Since the federal income tax code is so large and always subject to change, it would be a good idea to consult with an accountant before you submit your tax return.
While the cost of having an accountant prepare your taxes may be too significant for many small businesses to pay every year, you can normally hire an accountant to review your taxes at a fraction of the cost.
The accountant will be able to confirm whether the taxes were prepared correctly and if you are missing any deductions or credits.
Accrue for Tax Liability
The fifth tip that all businesses should follow to help manage their taxes is to accrue for their tax liability throughout the year.
For a successful business, end of the year taxes can be significant and a difficult one-time expense to pay. As opposed to paying a lot at once, a better option would be to accrue and save throughout the year based on an estimate of what your taxes will end up being.
Joshua Turner is a writer who creates informative articles in relation to business. In this article, he offers tax tips to small businesses and aims to encourage further study with an New Jersey Institute of Technology MBA Finance Online.