Small business owners are often not aware of the potential savings and tax deductions. Unless you’re an accountant yourself, tax legislation can be a challenge. To help you out, we’ve compiled a list of little-known tax saving tips for startups and small companies. Read on to find out more!
As more than half of Americans receive a refund every year, it means people are overpaying in taxes.
The same can be said for businesses and startups who may not realize they’re giving the government an interest-free loan for several months. If you think you might owe money, be sure you’re thinking about tax saving tips to ensure you keep the right amount of money every year.
Businesses make a lot of common mistakes when they’re paying or not paying taxes every year.
Avoid being like those businesses and follow these 5 tips to ensure your payment is correct.
1. Use Payroll Tax Software
One of the easiest ways to get dinged by the IRS with a hefty fine is to fail to pay your payroll taxes. A large portion of all companies will deal with this issue this and every year. Because most companies rely on paper or spreadsheets to keep track of payroll and how much they owe, they often miscalculate or report incorrectly.
Thankfully there is software that will help you to avoid costly penalties from the IRS. For best results, find a software to handle your payroll needs in general and then use that software to submit your reports.
If you carefully manage your payroll taxes, you can steer clear of this really common penalty and save money on your taxes.
2. Don’t Bring Personal Finances Into Business
This is a big issue for small business owners. When you’re running a startup or starting your own business, you might find that you’re not thinking about your expenses separately. When it’s time to buy envelopes, you might just pay for envelopes without thinking.
However, these purchases start to add up and can make filing for taxes difficult. The things you buy for everyday life might not be tax deductible but when you’re buying them for your business, you could deduct those expenses.
Keeping these purchases separate will also make it easier to file your taxes. If you ever end up getting audited by the IRS, you’ll need these documents to show that you had legitimate business expenses. They’ll be able to see money drawn from that specific account and will see that you’re doing your part to file ethically.
3. Set Up A Filing System
If you start every year by filing your receipts and expense reports in an organized way, tax time won’t be so hard. One of the reasons people hate dealing with their taxes is because they know that have to go through so many receipts and statements. They don’t stay organized throughout the year and so by the end, their whole set up is a mess.
Start with some expandable folders and start labeling them for each month. If you’re finding that you’re filling them up too fast, you can get one expandable folder for every month or quarter and divide your paperwork by type. The better you can break things down now, the easier it’ll be later on.
Do a little maintenance every month just to sort through things. Settle your accounts and the whole process will be much less daunting at the end of the year.
Make sure that your credit card statements match up with your expenses. You can be a few dollars off but making sure that you’re close means that you’ve got a handle on your expenses.
It’s a good look for any business and can keep from underreporting or over reporting and triggering an audit.
4. Use Accounting Software
Accounting software has every kind of user in mind these days. Whether you’re an advanced business owner who knows the ins and outs of the tax code or a total novice, tax software can help. You can keep track of your business revenue and expenses, create reports and statements, and send them out to your financial team.
If you have a tax preparer, you can set them up to connect to your software as well. They can help to point out any mistakes and ensure you’re on the right track.
To avoid some other minor issues that can snowball over time, think about hiring a virtual bookkeeper. By hiring one, you can leave all the hard work in their hand and be sure that your payroll and invoices are managed like clockwork.
Software like UltimateTax can help calculate all of these expenses and provide you with helpful reports.
5. Deduct Car Usage
You might have started your business with a tight budget and might not even have an office yet.
If you’re finding that you use your car a whole lot for your business, you could be deducting a fairly estimated amount from your tax bill. You can deduct mileage, wear and tear, and even more if your car becomes your center of operations.
Keep track of the mileage that you drive related to your business and can then multiply it by 53.5 to estimate how much you can deduct. This is considered the standard mileage rate and can be deducted as a business expense to save you on your taxes.
When you’re talking about other types of car expenses, you could be thinking about gas, repairs, and car insurance. You need to come up with a fair estimate for what percentage of time you’re using your car for business and how often you’re using it for personal things.
If you drove your car for business about 50% of the time, then you add all the expenses related to the car together and cut it in half. That’s how much of your car’s expenses you can deduct.
A Few Tax Saving Tips Could Save Thousands
Small businesses and startups need to pinch pennies just to keep their head above water, so a few tax saving tips could go a long way. Keeping a tight watch on your spending and taxes will allow you to grow at the pace you need to. Having to pay hefty penalties could hinder you when you’re most vulnerable.
If you need help financing your company, check out these common loans that could help you grow to your maximum potential.