Were you surprised by an unexpected tax bill this year, maybe you even had to pay a penalty? No business owner wants an unexpected bill to pay, especially not when it’s from the IRS. Surprise expenses put a strain on your cash flow. While this year’s tax surprises cannot be eliminated, there are things you can do to plan your taxes better and avoid this next year – and every year after that.
Keep up with your numbers.
Many business leaders wait until the end of the tax year to start gathering receipts and calculating expenses. Some have also not kept on top of their accounting entries. This is an invitation for making mistakes, which often lead to unwelcome surprises and even tax audits.
The solution can be as simple as getting organized! Be diligent about organizing your receipts and closing your books every month. You should consider saving invoices and paying bills electronically to increase the efficiency and accuracy of your records. This eliminates the tax-time rush and makes it easier to complete quarterly payments and filings. If you don’t have the time, inclination, or experience to do this yourself, it’s worth it to outsource your bookkeeping and accounting.
Make sure your records are accurate.
Accurate record keeping and proper classification of items and expenses help you avoid mistakes. Two frequent sources of recordkeeping mistakes are misclassifying employees as vendors and comingling personal and business expenses.
Small businesses often hire contractors and freelancers to supplement their in-house team. Freelancers are responsible for their own taxes; employees are not. There are a few reasons why freelancers should not be paid on a W-2, and we would be delighted to discuss those with you, but a mistake in classification or crossing the boundaries of the IRS definitions for “employee” and “contractor” can lead to issues with the IRS that can lead to a big bill for unpaid Social Security and Medicare taxes.
You should also never comingle business and personal expenses and accounts. As soon as you start your business you should open a business checking account. If you mix personal charges with business expenses, you could find yourself on the hook for business tax debts, and you won’t have a clear picture of how the business is actually doing.
Plan your taxes
Many companies are paying far more in taxes than they need to, simply because they are not aware of the various options available to remain as cost-effective as possible. There are many financial decisions made throughout the year that can impact your taxes. Our tax planning service gives you the information you need to make the decisions that are right for your organization. We can analyze every aspect of your financial affairs, from review of your accounting structure to advance business planning and problem solving.
There are few things more disruptive than an unexpected tax bill. To avoid that kind of unwelcome surprise, it’s important to plan ahead. Contact us today to learn more!