Few things can be as nerve-wracking for small businesses as planning for tax season. While you have been busy trying to make money and keep your business running, in the background has been the need to get the information you need ready for filing with the IRS. Still, taxes are a fact of life, and if you are not properly prepared, you are going to have a very unpleasant experience during tax season. In addition, you may end up missing out on a deduction or, worse, failing to properly report your company’s income. The last thing you want is end up with an audit because of your failure to prepare for taxes.
1. Choose the Right Accountant for Your Business
Tax planning should start with hiring an accountant who is right for your business. Sure, any certified public accountant (CPA) can fill out and file a tax return for a corporation, limited liability company (LLC), partnership, or sole proprietorship. However, not all small businesses are created the same way. If you are running a medical office, you are going to have different issues than a retail store, manufacturing plant, or plumbing business. Each type of business has its own separate matters that will have an impact on tax preparation. You need a CPA who has the knowledge and experience handling businesses in your company’s industry.
2. Always Maintain Separate Accounts
For many small businesses, it is tempting to use company funds or assets for your personal needs. Similarly, you may find yourself in a situation where your business cash is low, while you may have available funds in a personal account. Avoid this temptation as failing to maintain separate accounts not only complicates your tax planning, but also may harm the limitation of liability offered by a corporation or LLC. If your business owes money to the IRS and you commingled funds, this may create an opening for them to come after you personally.
3. Keep Adequate Records
While this may seem time-consuming, taking the time to enter every income, expense, and cost item as they occur will make it easier in the long run to get your taxes done on time. Trying to go back and recreate what happened may not be possible, especially if you didn’t keep receipts. In addition, if you didn’t keep adequate records, you may end up missing out on deductions.
4. Report All Income
No matter how you received income, you should report all of it to the IRS. Some businesses handle cash and there is a temptation to underreport cash receipts. Doing so can open you up to an audit that can lead to fines and penalties. In addition, if you receive a 1099 from a customer, make sure to check it against your records. These 1099 forms are filed with the IRS, which will check them against your returns. If there is a discrepancy, you need to contact the customer and get it resolved before you file your returns.
5. Properly Classify Your Business
Corporations that were formed under Subchapter C are subject to double taxation, paying their own taxes, with shareholders paying taxes on any dividends received. This is different from Subchapter S corporations, LLCs, and partnerships. You will need to make sure that your company’s taxes are filed under the proper form.
6. Consider Hiring a Bookkeeper
If you do not have the time to adequately account for your business’s expenses and income during the year, then you should consider hiring a bookkeeper to handle this, at least on a part-time basis. This person will work with your outside accountant to properly itemize and classify all of your company’s income and expenses. An experienced bookkeeper can save you a great deal of headaches preparing for tax season.
7. Prepare Your Payroll
If you are the only employee of your business and your company uses a form of business entity like an LLC or corporation, then you are going to need to run a payroll for yourself. You can set this up yourself or use the services of your accountant. Many businesses hire payroll companies, but make sure if you do this that the company you hire is reputable and will make all quarterly payroll tax payments to the IRS and the Pennsylvania Department of Revenue.
8. Stay Organized
The better organized you are, the easier it will be for your accountant to prepare your taxes and file them on a timely basis. This will also make it more likely that you will be able to capture all of the deductions that your company is eligible for, including things like the lower capital gains rate. Keep in mind that if you have to file for an extension, you are still required to pay the full amount of taxes owed or risk incurring fines and penalties. So, if you are not properly prepared, you may either end up overpaying and losing the time value of your company’s funds, or underpay and incur fines and penalties on the unpaid amount.
If You Need Assistance With Your State and Federal Taxes, Our Experienced Tax Attorneys Can Provide You With Assistance
With the new year almost upon us, you and your business are going to need to get ready for tax season. The experienced tax attorneys at Jones Gregg Creehan & Gerace, LLP can assist you with all of your company’s needs so you can avoid the pitfalls associated with federal and state taxes. Contact us today.