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5 Things You Should Know About Keeping Track of Business Taxes

18 August 2020 | 0 comments | Posted by Samantha Higgins in Money Talks

Tracking taxes small business

Running your business is itself hard to leave alone, not to mention facing the complexity of filing your taxes yearly. As a business owner, you have a lot of taxes consider and to pay. Therefore, a basic understanding of key tax types and how to track them makes your work easier. The sum of levies that you pay depends on how much you earn, your business structure, and whether you have employees or not.

As a business owner, you should understand five essential things to help you track your business taxes. So you do not end up with a heavy tax burden and ensure that the money you earn is put to productive use, instead of giving it away to governments.

Big businesses use tax deductions and loopholes to gain competitive advantages but that doesn't mean SME's cannot do the same. If you're a new business owner looking to become tax compliant, then here are a few tips on what you need to consider.

1. Understand the business taxes you may have to pay

When you own a business, it can be a great surprise to retain trajectories of the amount of taxes you are responsible for paying. Some of the fees to account for as a sole proprietor include the following. Payroll Tax – if you have staff in your business, you will be liable for paying payroll levies on their salaries.

Sales Tax – clients pay a sales tax on services and goods they purchase. Therefore, as the business owner, you are in charge for amassing and recording transactions levies to your local and state government.

2. Employ a qualified accountant

Doing your books is an essential way for your business to save money. However, a qualified accountant does more than just preparing your business financial statements. A good accountant works with you throughout the year to track your business income and spending. The bookkeeper will also truck your business taxes every month, not just on tax months.

3. Choose wisely your legal structure

When starting your business, it is crucial to know about the distinct legal structures that exist because every structure has diverse levy effects. For example, limited liability companies, sole proprietorships, C corporation, and S corporations are all different legitimate structures with various tax requirements.

As a business owner, it is easy to establish and run the business since it solely belongs to you. However, it can be risky at times since you individually undertake all legal and financial responsibilities. Nevertheless, your personal business levies are upfront because it's possible to account for your business losses and income on your tax return.

4. Use tax deduction to minimize your tax bill

Every business comes with various expenses. Such expenditures may include wages, contract labour, business travel, vehicle expenses, equipment, rent, supplies, and depreciation of assets. However, as a business owner, you can lower your company's duties by doing away with such operational costs when filing your tax returns.

Tax preparation software like QuickBooks self-employed tax bundle with intuit TurboTax tracks your expenses automatically to reduce your tax burden. This lets you claim your deductions spontaneously.

5. Pay your taxes quarterly

According to the IRS Levy Release Service, every business owner, especially sole proprietors, S corporation shareholders, or partners have to submit their quarterly estimated tax payments. As a sole proprietor, you can identify your approximate levy fee through Form 1040-ES. Besides, it may be useful to use your previous year's income, tax credits, and deductions as a beginning point.

After identifying the number and e-file, you can use different ways to pay the IRS. Such methods include IRS Pay by Card that permits you to pay online using your debit or credit card. You can also opt to use IRS Direct Pay, which captures money owned out of your checking or investments account.

A self-employed and sole-proprietor business holder almost always have to pay estimated quarterly levies except when their business loses money. You should remit after every three months your projected tax payments for each year every April 15, June 15, September 15, and January 15 of the subsequent tax year. You will be subjected to severe penalties if you don't pay a minimum of 90% of the taxes owed to your business. Therefore, it is crucial to work with a tax expert to help you double-check if the sum owed is correct.

Conclusion

As a business owner having a credible tax system help you in offsetting the potentially high cost for self-employed expert while filing your taxes. You can also limit your tax deductions relative to your business gains by writing off your startup and operating costs to maximize your tax deductions. Besides, working with a tax expert benefits by avoiding common drawbacks such as underreporting your business expenditures or overlooking critical tax forms that can save you money.

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Recommended reading

If you enjoyed this post and have a little extra time to dive deeper down the rabbit hole, why not check out the following posts on taxes and business finance.

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