As a new small business owner, you have a lot on your plate. Owning and growing a brand-new venture is already time-consuming—and on top of that, you need to learn the ins and outs of the mind-boggling world of taxes. It’s a lot to juggle, but don’t panic.
First, take a deep breath. You don’t have to know every tax code, credit, loop-de-loop, and workaround. Sure, it’d be fantastic if you did—but then you’d be an accountant instead of an entrepreneur.
Your job is to do your best and please the IRS—that’s it. And we’re here to help you make it happen.
Let us help you with the basics. Below, we’ll cover a few powerful tax payment tips that’ll streamline your processes, simplify your taxes, and help you to save a pretty penny, too.
1. Choose the Right Business Entity
The legal structure of your business will impact how you pay your taxes. Some entities pay business income taxes on their personal tax returns, while others pay separately. Fortunately, you get to decide your entity type.
As a sole proprietorship, you’ll report income and losses on your personal tax return. Partnerships, limited liability companies (LLCs), and S corporations divvy up the income and losses between partners and then report those on their individual tax returns. C corporations pay their own taxes—not the business owners.
Of course, your business entity type impacts more than just your taxes—so give How to Choose the Right Business Entity Type a read-through before you make any final decisions.
2. Separate Your Business and Personal Finances
Regardless of your business’s size, it’s generally a good idea to separate your business and personal finances. Open a unique bank account for your business finances—and secure a small business credit card while you’re at it.
Keeping your finances neat and tidy will make a night-and-day difference come tax season. With your business income and transactions organized in 1 place, you (or your accountant) will have no problem finding and claiming all available tax deductions and credits.
According to a Clutch study, around 23% of small business owners list mixing business and personal finances as their top financial challenge. And that percentage is awfully close to the 27% of owners who admit to not creating a separate business bank account.
Want to monumentally improve the accuracy of your tax payments? Separate your accounts.
3. Take Advantage of Software
Software exists to make life easier—so use it. Consider using tax filing software to prepare and file your tax returns accurately online. And organize all your business bank accounts and transactions with a cloud-based bookkeeping solution.
For example, Sunrise Tax Assist helps you to stay on top of your tax obligations with expert checklists, document organizers, and a tax burden estimator. Knowing what tax obligations you can expect goes a long way in preparing for when April comes around.
Tax Assist is a free tool that comes with Sunrise’s free bookkeeping software.
4. Claim Available Tax Deductions and Credits
Though some people use the terms tax deduction and tax credit interchangeably, the 2 aren’t the same. Tax deductions reduce your tax bill by decreasing your taxable income, while tax credits decrease your tax obligation by directly lowering the amount of taxes you owe.
Claim small business tax deductions on advertising expenses, business insurance, depreciation, rent, salaries, benefits, travel, and much more. And save money (and possibly get a surprise reimbursement) by claiming available tax credits on expenses like retirement plan startup costs, employer health insurance premiums, accessibility investments, and more.
5. Hire Help
Don’t be afraid to hire help when you need it. Professional bookkeepers and accountants can help you to correctly file your tax returns and capitalize on all the juicy tax write-offs.
Their prices might deter you—but put them in perspective. How much is your time worth? How many hours do you spend every year on your taxes?
Now, think about how much money a professional accountant can save you—and how many hours (and necessary Advils) they can give back to you.
The math usually reveals that an accountant is more than worth the cost.
Plus, you don’t go out and build your home with your own hands just because it’s cheaper (unless you’re one of those very special individuals). You hire the pros—because you can trust that when they build a house, it won’t fall down when it rains.
The same is true for your taxes. Trust the pros to get it right the first time so the IRS doesn’t come knocking on your door.
Manage Your Taxes and Reap the Rewards
While taxes can be a major headache, they’re also a prime opportunity for you to offset the high costs of starting a business. Get organized, maximize your deductions, claim your tax credits, and save your hard-earned money for growing your business.